[Wealth Succession] Jinyang Pharmaceutical ② Never Disclosed CB Conversions... Minority Shareholders Left in the Dark

All 11 Conversions Went Undisclosed...
Over 10% of Shares Released Without Notice
Violation of Korea Exchange Disclosure Rules

From the left, Yoonhwan Choi, Chairman of Jinyang Pharmaceutical, and Jaejun Choi, CEO of Jinyang Pharmaceutical. Screenshot from Jinyang Pharmaceutical website

It has been revealed that Jinyang Pharmaceutical, a KOSDAQ-listed company, has never made a single disclosure regarding the exercise of conversion rights for its convertible bonds (CB). As a result, more than 10% of the company’s total shares were released into the market without proper public notice.

According to the Financial Supervisory Service’s electronic disclosure system on October 30, Jinyang Pharmaceutical issued its first CB worth 16 billion won in November 2021. Both the coupon and maturity interest rates were set at 0%. This is interpreted as investors seeking capital gains rather than interest income. The initial conversion price for the shares was 6,668 won.

A CB is a bond that operates like a typical debenture paying interest, but after a certain period, the investor is granted the right to convert it into shares of the issuing company. Jinyang Pharmaceutical’s first CB became eligible for conversion into shares in November 2022, one year after issuance.

To date, the first CB has been converted into shares a total of 11 times. The total amount converted is 6.61 billion won, resulting in the issuance of 1,258,760 new shares. This represents a substantial volume, equivalent to 10.5% of Jinyang Pharmaceutical’s total number of shares before the CB conversion.

However, Jinyang Pharmaceutical did not make a single disclosure regarding the exercise of conversion rights. Such disclosures are intended to inform investors in advance about the potential dilution of share value due to the issuance of new shares. Typically, these disclosures are made two weeks to one month before the new shares are listed.

If such disclosures are not made in a timely manner, ordinary shareholders cannot be informed in advance about the risk of share dilution. Although the exchange issues an “additional listing” disclosure right before the converted shares are listed, existing shareholders have little time to respond.

It appears that Jinyang Pharmaceutical also violated Korea Exchange disclosure regulations. According to the exchange’s rules, a disclosure must be made if the amount of shares converted exceeds 1% of the total number of issued shares. There have been an estimated five instances where the scale of CB conversion at Jinyang Pharmaceutical exceeded this 1% threshold.

Among these, there was also a conversion request for CBs worth 900 million won held by Yoonhwan Choi, Chairman of Jinyang Pharmaceutical, in June. The company owner’s family converted CBs they held into shares, thereby securing more than a 1% stake, yet failed to notify the market in advance. This has raised concerns about “moral hazard” among the management.

Furthermore, controversy is expected over the disclosure of the “large shareholding report” related to 4.5 billion won worth of CBs that Jinyang Pharmaceutical transferred to its affiliate, Zenis Value Asset, on October 2. Typically, if the management exercising influence over both entities is substantially the same, they are required to jointly report as the largest shareholder with management rights or disclose their shareholding purpose as “management participation.”

Zenis Value Asset is a corporation where many of Jinyang Pharmaceutical’s current and former executives have served as registered directors. The current CEO of the largest shareholder entity is also a member of Jinyang Pharmaceutical’s management. Nevertheless, Zenis Value Asset disclosed its purpose for holding Jinyang Pharmaceutical shares as “simple investment.” If Zenis Value Asset’s shares are later used as friendly shares for the largest shareholder, the Financial Supervisory Service may raise issues.

Meanwhile, Jinyang Pharmaceutical did not respond to inquiries regarding the violation of disclosure regulations and related matters.

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