[Bio Shaking the Market]④ Aprogen Strengthens Chairman Kim Jaeseop's Control Through Option Trading

[Asia Economy Reporter Jang Hyowon] Kim Jaeseop, chairman of Aprogen, strengthened his control through option trading.

According to the Financial Supervisory Service's electronic disclosure, on April 23 last year, Gbase sold a call option to Aprogen for 28.496 billion KRW, which allowed Aprogen to purchase 47.5 billion KRW worth of AprogenKIC 14th series convertible bonds with warrants (BW).

The AprogenKIC 14th series BW is a bond issued on December 21, 2017, with a scale of 100 billion KRW. The exercise price for the warrant is 2,172 KRW.

At the time of issuance, the 14th series BW included a call option allowing Gbase or a third party designated by Gbase to purchase 50% (50 billion KRW) of the bond principal at will. Among these, Gbase transferred the call option for 47.5 billion KRW BW to Aprogen.

The call option price was determined as 1,303 KRW, calculated by subtracting the exercise price of 2,172 KRW from the closing price of AprogenKIC on April 22 last year, the day before the option transaction, which was 3,475 KRW.

The stock price of AprogenKIC fluctuated around 3,000 KRW from early January to the end of March last year, but surged sharply on April 4 and 5, just before the option transaction, temporarily surpassing 4,000 KRW.

Typically, companies consider stock price volatility and calculate the per-share value based on the average price over a certain past period when raising funds. However, Aprogen applied the closing price of just one day, the day before the option transaction, during a period of increased volatility to determine the option price.

Aprogen exercised part of the call options purchased in this way and acquired 40.2 billion KRW worth of the 14th series BW. It then immediately exercised the warrant to acquire 18,509,287 shares (13.26%) of AprogenKIC. Adding the exercise price and the option value, Aprogen obtained AprogenKIC shares at 3,475 KRW per share, totaling 64.3 billion KRW.

Afterwards, the stock price of AprogenKIC declined over four months. The increase in the number of shares due to the exercise of the warrant is interpreted as a factor diluting shareholder value. In August last year, the price fell to 1,710 KRW, the lowest since January 2015. As of the closing price on the 14th, AprogenKIC's stock price was 3,020 KRW, still below the price at which it was acquired through BW. Aprogen, instead of Gbase, bore the overhang issue (large volume of shares waiting to be sold) and the risk of stock price decline resulting from the new share acquisition.

Regardless of the stock price trend, Aprogen additionally acquired AprogenKIC's BW and converted them into shares. In June last year, Aprogen exercised 2.6 billion KRW worth of BW and obtained 1,197,053 shares. At that time, AprogenKIC's stock price was 3,100 KRW. When converting 900 million KRW worth of BW into shares in August last year, the stock price was 2,275 KRW. Since a merger was also under consideration, it seems that expanding AprogenKIC's stake was judged to be advantageous.

Gbase is a personal company wholly owned by Kim Jaeseop, chairman of Aprogen, and is the largest shareholder of Aprogen (31.35%) and AprogenKIC (20.48%). It is the corporation at the top of the Aprogen Group's governance structure and can make important management decisions such as fund transactions among affiliates.

Accordingly, the market raises concerns that Gbase, where Chairman Kim Jaeseop holds a high share, may have used the affiliate Aprogen to conduct such transactions to benefit itself.

An Aprogen official said, “Since it is uncertain whether the stock price will rise or fall in the future, the value of the AprogenKIC BW call option was not a factor considered in the valuation,” and added, “There was no damage to Aprogen.”