[Public Companies at a Crossroads] GW Biotech, Positive News Following Discounted BW Sale ④

Cancellation of 13 Billion BW Approved by Board, Resold After One Year
BW Existence Not Disclosed Until Now... Bombardment of Shares for Existing Shareholders
Only BW Buyers Profit↑... Promotional Materials Distributed When BW Volume Released

Yang Jaewon, CEO of GW Biotech (right), signing an agreement with NParticle. / Photo by GW Biotech

[Asia Economy Reporter Jang Hyowon] G-W Biotech, a KOSDAQ-listed company, has been found to have suddenly resold convertible bonds with warrants (BW) worth 13 billion KRW, which it had announced last year would be canceled but neither canceled nor disclosed their existence for a year. Additionally, after selling the BW at a price lower than the market price, the company spread positive news through promotional materials timed with the stock release period.

According to the Financial Supervisory Service’s electronic disclosure on the 13th, G-W Biotech sold the 13th series BW with a face value of 13 billion KRW in three installments from March 30 to April 28 to various corporations and investment associations. The disposal amount was 15 billion KRW, reflecting a 15.4% premium over the face value.

The 13th series BW was a bond issued in January 2020 when G-W Biotech was named ‘Youngin Frontier,’ targeting KB Securities. Subsequently, G-W Biotech repurchased the BW for about 14.8 billion KRW in March last year, roughly one year later, due to an early redemption request following the company’s trading suspension caused by a disclaimer of audit opinion in March 2020.

The company held onto the BW it purchased at that time and resold it in March-April this year at a price similar to the purchase price.

When G-W Biotech bought the BW from KB Securities, the board of directors resolved to cancel the purchased BW. The board included CEO Yang Jaewon, non-executive director Kim Jungguk, Vice President Noh Kyungrok, and outside director Jung Dongsu, who approved the cancellation agenda.

However, the BW cancellation did not proceed for over a year, and eventually, in February, the company corrected its disclosure to announce the resale of the BW and proceeded with the sale. As a result, existing shareholders, unaware of the potential supply, had to cope with the sudden release of shares amounting to 30% of the total shares. In fact, until the Q3 report last year, G-W Biotech disclosed that all BW had been early redeemed and no outstanding amount remained.

On the other hand, it is estimated that the BW acquirers made high profits. At the time of selling the BW, the warrant exercise price was 1,205 KRW per share, significantly lower than the initial exercise price of 4,830 KRW. This was because G-W Biotech adjusted the warrant exercise price to the price on the day before the trading suspension in March 2020. Some have criticized this as a ‘cunning repricing’ tactic.

Notably, when selling the BW to investment associations, the stock price was more than twice the exercise price. On March 30, when the BW was first sold, G-W Biotech’s closing price was 2,270 KRW. The BW was exercised immediately after the sale, and on April 20, 7,985,609 new shares were listed, with the closing price on that day around 1,955 KRW. Considering the acquisition premium paid, the BW acquirers could have earned about a 40% profit.

Moreover, starting around the day the BW was newly listed, G-W Biotech began distributing promotional materials. On April 15, three trading days before the first BW listing, G-W Biotech released materials stating it would invest an additional 2.5 billion KRW in the investment company ‘SNP Genetics’ to build a new bio platform focused on DNA and RNA.

Also, on April 25, similar positive news was distributed about becoming a bio infrastructure company in cooperation with SNP Genetics. On the last BW listing day, May 19, the company released materials announcing an equity investment in ‘NParticle’ and securing mRNA LNP particle production process technology.

Multiple inquiries were made to G-W Biotech for their position on these matters, but no response was received.