Kwangdong Pharm scraps exchangeable bond plan after regulator’s warning

Yonhap News

Kwangdong Pharmaceutical Co. has withdrawn its plan to issue exchangeable bonds (EBs) backed by treasury shares just five days after the Financial Supervisory Service (FSS) demanded a correction to its filing. The company ultimately chose to cancel the plan rather than push through the regulator’s tighter scrutiny.

The drugmaker announced on Tuesday that it had revoked its earlier decision on October 20 to dispose of 25 billion won ($17.4 million) worth of treasury shares. In a revised filing, the company said, “After discussions with the lead manager, we decided to cancel the EB issuance,” adding that it will instead proceed with a capital increase for an affiliate through alternative funding channels.

The move follows the FSS’s correction order issued on October 23. The regulator, which has tightened EB disclosure rules since October 20, selected Kwangdong Pharm as the first company to be reviewed under the new system after it filed an EB issuance notice on the same day.

The FSS explained that the company’s original filing failed to meet disclosure requirements under Article 4-5 of the Regulations on Securities Issuance and Disclosure, particularly in the section for “other information relevant to investment decisions.”

The regulator had earlier announced on October 16 that it would strengthen disclosure standards to curb indiscriminate EB issuance by listed firms, requiring detailed reporting on governance impact, shareholder interests, issuance rationale, and validity assessments.

Kwangdong’s withdrawal is expected to weigh on other companies considering similar financing methods. With EB issuance now facing tougher oversight, alternatives such as share swaps—which can restore voting rights—and price return swaps (PRS)—which provide liquidity without being recorded as debt—are emerging as potential substitutes.

Kwangdong carried out a 22 billion won share swap with Kumbi Co. and others in September, prior to its scrapped EB plan.