[비즈한국] PCR molecular diagnostics company Seegene096530 is grappling with deepening concerns over how to utilize its treasury shares. The passage of a Commercial Code amendment, which mandates the cancellation of treasury shares held by corporations, is becoming increasingly likely. While there is controversy regarding the infringement of property rights under the Constitution, the possibility has been raised that the legislation could include requirements to cancel existing treasury shares. With pharmaceutical and biotech companies actively utilizing their treasury shares since the second half of the year, all eyes are on Seegene's next move.
According to the Financial Supervisory Service's Data Analysis, Retrieval and Transfer System (DART) on the 22nd, as of the 8th of last month, Seegene held treasury shares worth 198.6 billion won, accounting for 11.7% of its total issued shares. With the benefits of the COVID-19 pandemic having ended, Seegene previously stated that it would utilize these treasury shares to secure future growth engines, specifically for corporate M&As and its "technology-sharing" business, which it identifies as a key driver of growth. In January and June of last year, the company acquired IT firms Brex and Pentaworks, using 5 billion won worth of treasury shares to reduce cash expenditures. In February of this year, it also used 1 billion won in treasury shares to acquire DandiMeca, a manufacturer of customized automation equipment.
However, as the likelihood of the Commercial Code amendment—which would mandate the cancellation of treasury shares upon acquisition—passing during the regular parliamentary session this November increases, Seegene's long-term plans for utilizing these shares face potential setbacks. A Seegene official stated, "We are continuously monitoring the direction of the legislative amendments and are internally considering our response strategies."
Treasury stock cancellation is typically considered a means to enhance shareholder value. This is because cancelling treasury shares reduces the number of issued and outstanding shares, which boosts earnings per share (EPS) and increases the value of the shares held by investors.
Companies have traditionally used treasury shares for exercising appraisal rights, employee bonuses, or retirement benefits. However, entering this year, there has been a surge in the issuance of exchangeable bonds (EBs) as companies rush to liquidize their treasury shares in anticipation of the Commercial Code amendment. EBs allow companies to raise funds at lower interest rates than standard corporate bonds, and because the exchange price is often set 10–30% higher than the current stock price, they serve as a way to sell treasury shares at a premium. Unlike convertible bonds (CBs), which involve issuing new shares and diluting shareholder value, EBs are backed by existing shares.
This month, Chong Kun Dang Holdings001630 and Kwang Dong Pharmaceutical009290 announced plans to issue EBs, while Voronoi310210 completed an EB issuance worth 36 billion won. Last month, seven pharmaceutical and biotech companies, including Chong Kun Dang185750, decided to issue EBs using treasury shares as the exchange target. Compared to the issuance activities by Dongkoo Bio & Pharma in March, Samil Pharmaceutical in April, Whanin Pharmaceutical in July, and Peptron in August, the activity in the pharmaceutical and biotech sector appears to be intensifying as the year-end approaches.
Sales of treasury shares are also active. Kwang Dong Pharmaceutical sold 22 billion won worth of treasury shares through an off-hours block trade on the 30th of last month, disposing of them to partners such as Kumbi, Samhwa Crown, and Samyang Packaging, with whom it collaborates in outsourced production and material procurement. In July, Whanin Pharmaceutical sold approximately 12.2 billion won worth of treasury shares to increase floating volume and secure operating funds, while Jinyang Pharmaceutical sold 2 billion won worth of treasury shares for the purposes of securing operating capital and improving its financial structure.
Assessments regarding the decision to sell treasury shares or issue EBs instead of cancelling them are mixed. While this provides a way for companies to raise capital and reinvest in future growth, shareholders often prefer the cancellation of treasury shares to boost EPS, as the success of such investments remains uncertain. Lee Sang-mok, CEO of Act, an online minority shareholder alliance platform, pointed out, "While this might pour cold water on companies that intended to use treasury shares for business purposes, the surge in companies issuing EBs ahead of the Commercial Code amendment actually justifies the legislation's necessity. Isn't this just management and other major shareholders trying to secure friendly allies?"