The Financial Supervisory Service has moved to halt Kwangdong Pharmaceutical's issuance of exchangeable bonds (EB) involving treasury shares, following a similar action against Taekwang Industrial.
On October 23, the Financial Supervisory Service issued a correction order via electronic disclosure, stating, "The information listed under 'Other Matters for Investment Judgment' in the report on the decision to issue exchangeable bonds submitted on October 20 does not comply with regulations." Previously, Kwangdong Pharmaceutical had announced that it would issue exchangeable bonds worth 25 billion won, backed by its own treasury shares. The treasury shares subject to exchange total 3,793,626 shares, equivalent to 7.24% of the company's total outstanding shares.
Kwangdong Pharmaceutical explained that Daishin Securities, the lead underwriter for the issuance, would acquire the entire amount and had no plans for resale. However, the Financial Supervisory Service determined that this information was either incomplete or potentially inaccurate. In the market, there have been ongoing criticisms that issuing exchangeable bonds backed by treasury shares effectively has the same impact as a third-party paid-in capital increase when the exchange rights are exercised, thereby infringing on the interests of existing shareholders.
This is the second time a correction order has been issued regarding exchangeable bond disclosures, following a similar case involving Taekwang Industrial in July. The Financial Supervisory Service has recently strengthened disclosure standards to curb indiscriminate EB issuances by listed companies, requiring detailed information on the impact on corporate governance, shareholder interests, issuance purpose, and validity assessments at the time of issuance.
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