Kim So-Young, Vice Chairman of FSC, "CB Should Not Be a Means for Major Shareholders' Private Gain"

Strict Punishment for CB Unfair Trading Practices
Strengthening Disclosure Obligations for CB Issuance
Exception to Minimum Conversion Price Limit Applied After Shareholders' Meeting Approval

"We will fundamentally respond to ensure that convertible bonds (CB) are no longer exploited as a means for major shareholders to pursue private interests through unfair practices."

Kim So-young, Vice Chairman of the Financial Services Commission, attended the 'Convertible Bond Market Soundness Enhancement Meeting' held at 10 a.m. on the 23rd at the Korea Exchange in Seoul, and emphasized, "We will strictly punish unfair trading activities related to CBs under the 'zero tolerance' principle."

Kim So-young, Vice Chairman of the Financial Services Commission. Photo by Yoon Dong-joo doso7@

First, Vice Chairman Kim stated that transparency in the CB market will be enhanced. He said, "We will strengthen disclosure obligations related to issuance and distribution to ensure that sufficient information is provided to the market in a timely manner," adding, "Information that can significantly impact the governance and share value of large companies, such as the plans for handling CBs acquired before maturity or by call option exercisers, will be disclosed more transparently."

He also announced plans to rationalize 'refixing,' which adjusts the conversion price of CBs. There have been continuous criticisms that frequent refixing due to reasons such as stock price declines damages shareholder value. Vice Chairman Kim stated, "Some companies arbitrarily adjusted the conversion price to provide benefits to specific individuals," and added, "We will specify the calculation standards and adjustment methods to ensure that the conversion price appropriately reflects the market price."

The exception to the minimum conversion price limit (below 70%) will only be applied with the consent of the shareholders' meeting (on a case-by-case basis). Furthermore, in cases where the value of conversion rights is diluted due to capital increases or dividends, downward adjustments of the conversion price will only be allowed to an amount reflecting the dilution effect or higher.

Lastly, he also pledged to strengthen inspections and sanctions against unfair trading in the CB market. Vice Chairman Kim said, "We will strictly sanction detected unfair trading and focus the investigative capabilities of related agencies to respond thoroughly." He continued, "Korea's CB market has grown somewhat abnormally due to the combination of investors' tendencies to excessively avoid risk and companies' demand to raise funds by any means," adding, "We will closely monitor market conditions and actively seek necessary institutional improvements."