[Funding] Daewoong Pharmaceutical in the 'Botox War' Shifts to 'Loans and Short-term Borrowings' After Abandoning Public Bonds

[Image source=Yonhap News]

[Asia Economy Reporter Lim Jeong-su] Daewoong Pharmaceutical has borrowed 90 billion KRW to repay its maturing corporate bonds. Due to uncertainties surrounding the botulinum strain dispute with Medytox, it is interpreted that the company secured liquidity by relying on loans and short-term borrowings instead of public corporate bonds (public bonds).

On the 23rd, Daewoong Pharmaceutical borrowed 90 billion KRW from a special purpose company (SPC) established under the lead of KB Kookmin Bank. The loan maturity is three years, with a lump-sum principal repayment scheduled for October 2023. The borrowing amount corresponds to 14.15% of Daewoong Pharmaceutical’s total equity capital last year.

The lead manager, KB Kookmin Bank, issued asset-backed commercial paper (ABCP) using the loan principal and interest to be repaid by Daewoong Pharmaceutical as the underlying asset, thereby securing the liquidity needed for the loan. KB Kookmin Bank also provided credit facilities such as liquidity commitment agreements to the SPC during this process.

Daewoong Pharmaceutical plans to use the borrowed funds to repay maturing corporate bonds. The public bonds issued in October 2017 with a three-year maturity will mature on the 27th. The coupon rate of the bonds issued at that time was 2.83%.

Daewoong Pharmaceutical has mainly raised funds for debt repayment and company operations by issuing public corporate bonds. The number of bond issuances increased, including 90 billion KRW in September 2017, 90 billion KRW in July 2018, 100 billion KRW in April last year, and 100 billion KRW in October of the same year.

However, this year, the company has not issued public bonds. Although it attempted to issue public bonds from the first half of the year, it is known that it gave up bond issuance and switched to loans as the dispute turned unfavorable. Previously, it secured liquidity through other means besides public bonds, such as short-term borrowings of 50 billion KRW from financial institutions.

Daewoong Pharmaceutical became embroiled in a dispute over the botulinum toxin strain, the raw material for the botulinum toxin preparation, at the U.S. International Trade Commission (ITC) due to a lawsuit filed by Medytox in January last year. Medytox claims that Daewoong Pharmaceutical stole information about Medytox’s strain and manufacturing process technology during the development of Nabota, while Daewoong Pharmaceutical denies this, asserting it developed the technology independently.

In a preliminary ruling in July this year, the ITC administrative law judge found that Daewoong Pharmaceutical infringed Medytox’s trade secrets and recommended that the ITC full commission issue a 10-year import ban on Nabota for Daewoong Pharmaceutical. The ITC’s final ruling date was scheduled for the 6th of next month but was postponed by two weeks to the 19th of the same month.

An investment banking industry official said, "Annual litigation costs amount to about 40 billion KRW, and if the company loses the lawsuit, it will face financial pressure due to fines and performance deterioration caused by reduced exports," adding, "Given the significant financial uncertainty, even if a public bond demand forecast is conducted, securing investor demand is not easy."

A Daewoong Pharmaceutical official explained, "Financial institutions offered favorable interest rate conditions, leading us to switch from issuing corporate bonds to general borrowings," and added, "This funding will reduce annual interest expenses by about 600 million KRW."