[At a Crossroads: Listed Companies] Ostem Implant, Signs of Large-Scale Support to Chairman Choi Kyu-ok's Family Company ④

[Asia Economy Reporter Jang Hyowon] Ostem Implant, which experienced an embezzlement case worth approximately 198 billion KRW, has been found to have provided large-scale support over several years to a family company of Chairman Choi Kyu-ok, the largest shareholder. The responsibility of the largest shareholder for the collapse of Ostem Implant's internal management system is emerging, raising expectations of controversy.

Choi Kyu-ok, Chairman of Osstem Implant.

According to the Financial Supervisory Service's electronic disclosure on the 10th, among Ostem Implant's affiliates, there is a company called 'Ostem Pharma.' Ostem Implant holds a 48% stake in this company.

Ostem Pharma is an oral pharmaceutical company engaged in the business of selling professional and general medicines used in dentistry, including toothpaste and mouthwash. Ostem Implant established Ostem Pharma in 2015 with an investment of 4 billion KRW. At that time, Ostem Pharma was a 100% subsidiary of Ostem Implant.

Subsequently, Ostem Pharma increased its capital by 4 billion KRW at the end of 2015 and 2 billion KRW in 2018. It is estimated that Chairman Choi Kyu-ok of Ostem Implant and two related parties believed to be his children participated and acquired shares in Ostem Pharma. Ostem Implant did not participate in the capital increase, causing its stake to drop to 40%.

In 2020, Ostem Pharma absorbed and merged with a company called 'Ostem Oral Care,' which caused changes in the shareholding ratio. Ostem Oral Care was 66.67% owned by Ostem Implant, with the remainder held by Chairman Choi Kyu-ok.

Through capital increases and mergers, the shareholding of Chairman Choi's family surpassed that of Ostem Implant. As of the end of last year, Ostem Pharma's shareholding ratio was 48% for Ostem Implant, 34% for Chairman Choi Kyu-ok, and 8.7% each for the two related parties of Chairman Choi. Combining the shares of Chairman Choi's family amounts to 51.4%, making them the largest shareholder of Ostem Pharma. This structure means that the performance generated by Ostem Pharma benefits Chairman Choi's family more than Ostem Implant.

Meanwhile, Ostem Pharma was separated as an affiliate company rather than a subsidiary of Ostem Implant. When it was a subsidiary, Ostem Pharma was considered the same company as Ostem Implant for consolidated financial statements, and sales and other performance were combined. However, as an affiliate, only the equity method profit or loss corresponding to the investment is reflected in Ostem Implant's performance.

Despite not being a subsidiary but an affiliate, Ostem Pharma received full support from Ostem Implant. From 2015 to 2020, except for 2019, about 90% of Ostem Pharma's sales came from Ostem Implant. Ostem Implant purchased most of Ostem Pharma's products.

Nevertheless, as Ostem Pharma continued to record losses, Ostem Implant began lending tens of billions of KRW annually to Ostem Pharma starting in 2019. The amount lent by Ostem Implant to Ostem Pharma sharply increased from 3 billion KRW at the end of 2019 to 11.7 billion KRW by the end of the third quarter last year.

Not only did Ostem Implant lend money, but it also provided debt guarantees. As of the end of the third quarter last year, Ostem Implant provided payment guarantees for 7.2 billion KRW borrowed by Ostem Pharma from financial institutions. Ostem Implant either lent or is jointly responsible for 72% of Ostem Pharma's total debt of 26.2 billion KRW.

Regarding this, an Ostem Implant official stated, "Chairman Choi Kyu-ok invested in Ostem Pharma to take responsible management."

However, there was no response regarding the acquisition of shares in Ostem Pharma by related parties believed to be Chairman Choi's family. The industry consensus is that responsible management usually means sharing the company's risks, so family members typically do not invest together.

Meanwhile, Ostem Implant has faced controversies over poor management and largest shareholder risks following the recent embezzlement case worth 198 billion KRW. Chairman Choi was previously convicted in 2014 for providing illegal rebates worth tens of billions of KRW to dentists, as well as for breach of trust and embezzlement.