[Wealth Succession] Jinyang Pharmaceutical ① Is Choi Jaejun Seeking to Secure Control Through Loopholes... Transfer of CBs to Related Parties

Transfer of 4.5 Billion Won CBs at Face Value to Capital-Impaired Affiliate
Owner's Control Strengthened from 31% to 37%

Choi Jaejun, CEO of Jinyang Pharmaceutical. Screenshot from Jinyang Pharmaceutical website

KOSDAQ-listed Jinyang Pharmaceutical has transferred convertible bonds (CB) worth 4.5 billion won at face value to a related-party corporation. This corporation is comprised of current and former key executives of Jinyang Pharmaceutical, and there are claims that the CBs were used to secure control for the owner’s family.

According to the Financial Supervisory Service’s electronic disclosure system on October 22, Jinyang Pharmaceutical announced on October 2 that it would transfer its first series of CBs, worth 4.5 billion won, to “Zenith Value Asset” at face value. The conversion price for the CBs is 5,242 won, and considering that Jinyang Pharmaceutical’s closing price at the time of the transaction was 5,740 won, Zenith Value Asset stands to gain an approximate 10% valuation profit.

Previously, in November 2023, Jinyang Pharmaceutical had repurchased 5.4 billion won worth of its first series CBs issued in 2021. At that time, Jinyang Pharmaceutical paid a call option premium to the CB holders for the repurchase, but transferred the CBs to Zenith Value Asset without any premium.

Zenith Value Asset, established in 2016, recorded sales of 3.6 billion won and net profit of 400 million won as of the end of last year. Its main business is pharmaceutical wholesale, supplying products sourced from Jinyang Pharmaceutical. Last year, Zenith Value Asset purchased approximately 2.9 billion won worth of products from Jinyang Pharmaceutical.

Although the company showed business performance, its financial structure is weak. As of the end of last year, Zenith Value Asset’s total assets stood at 2.178 billion won, while total liabilities were 2.66 billion won, putting it in a state of complete capital impairment. Accordingly, Jinyang Pharmaceutical set aside part of its accounts receivable from Zenith Value Asset as an allowance for bad debts. In effect, Jinyang Pharmaceutical transferred 4.5 billion won worth of CBs to a corporation from which it may not be able to fully collect its receivables in cash.

Several current and former executives of Jinyang Pharmaceutical have served as registered directors of Zenith Value Asset. Until 2021, Lee Jongseong, who served as an auditor at Jinyang Pharmaceutical for 42 years, was the CEO of Zenith Value Asset. In addition, Lim Jaehong, Executive Director of Jinyang Pharmaceutical, also served as an auditor there until 2022.

Furthermore, Lim Jonggu, Executive Vice President of Sales, is the CEO of “Irene Cosmedics,” the largest shareholder of Zenith Value Asset. Irene Cosmedics was established in August this year with a capital of 50 million won and holds a 22% stake in Zenith Value Asset.

The market views the transfer of CBs to Zenith Value Asset, which has close ties to the company’s management, as a move that has strengthened the control of CEO Choi and the owner’s family. CEO Choi is the son of Choi Yunhwan, the founder and chairman of Jinyang Pharmaceutical. On October 2, he became the sole CEO of Jinyang Pharmaceutical.

CEO Choi holds a 22.25% stake in Jinyang Pharmaceutical. Including the shares held by his family and related parties, such as Chairman Choi (4.17%), the total amounts to 31.07%. Adding the 858,450 shares (6.08%) that can be converted from the 4.5 billion won CBs, the total shareholding would rise to 37.15%.

Jinyang Pharmaceutical was contacted several times for comments regarding the CB transfer and the strengthening of CEO Choi’s control, but did not respond.

Meanwhile, in July, Jinyang Pharmaceutical faced controversy after transferring 320,000 treasury shares (2.45%) to Chairman Choi at a low price, at a time when the government was discussing mandatory cancellation of treasury shares.

This content was produced with the assistance of AI translation services.