Controversy Over Dong Sung Pharmaceutical Rehabilitation Plan Structure: Annual 5.4 Billion Won Interest, Headquarters Used as Collateral

Regarding the controversy surrounding the rehabilitation plan for Dong Sung Pharmaceutical, Brand Refactoring, the largest shareholder, stated on March 17 that the current structure should not be seen as a simple capital-raising measure, but rather requires a comprehensive review of existing shareholder rights and the company’s key assets as well.

A Brand Refactoring representative explained, “The currently disclosed rehabilitation plan consists of a 70 billion won third-party allotment capital increase, 50 billion won in convertible bonds (CB), and 40 billion won in corporate bonds,” adding, “On the surface, this amounts to a total of 160 billion won being injected for normalization purposes.”

However, they noted that a more detailed review of the financial cost burden is necessary. Brand Refactoring stated, “With the coupon rate for the 50 billion won in CBs and 40 billion won in corporate bonds known to be 6% per annum, the annual cash interest expense would amount to approximately 5.4 billion won based on simple calculations.”

They continued, “In the case of the convertible bonds, it is also being discussed that, based on the yield to maturity (YTM), the effective cost of funding could be interpreted as being around 10%. Applying this metric, the economic interest burden could rise to approximately 7.6 billion won per year.”

The relationship with the company’s earnings structure was also mentioned. Brand Refactoring noted, “There are market opinions suggesting that Dong Sung Pharmaceutical’s estimated EBITDA for 2025 is around negative 3.8 billion won,” and added, “Whether the company is in a structure where it must simultaneously bear new financial costs while its core business is constrained in generating cash will need to be examined.”

Regarding the 70 billion won third-party allotment capital increase, they explained that the impact on existing shareholders’ equity is a key issue. Brand Refactoring said, “Even in a structure where there is no formal capital reduction, if a large number of new shares are issued, there could be a dilution of existing shareholders’ equity ratio and value. The advantages and disadvantages for stakeholders will differ depending on the issuance conditions and valuation criteria for the capital increase.”

The matter of the company’s key assets was also addressed. Brand Refactoring stated, “According to briefs submitted to the court by opposing parties, the Seoul Dobong-gu headquarters and the Asan plant are viewed as the company’s core production and business bases,” and explained, “If a first-priority collateral mortgage is set on the convertible bonds in this structure, these assets could be understood as being used as collateral for the new financing arrangement.”

They added, “A structure in which key assets are provided as collateral may be evaluated as a factor that could influence future additional financing or management decisions.”

Brand Refactoring emphasized that the key issue of the current rehabilitation plan is not the size of the funds themselves, but the terms of the funding. Brand Refactoring commented, “Annual interest burden, effective funding cost of the convertible bonds, impact on existing shareholders’ equity from the third-party allotment capital increase, and the provision of key assets as collateral are all factors that require simultaneous review.”

They added, “During the creditors’ meeting and the court’s evaluation process, there is expected to be a comprehensive review of whether the rehabilitation plan is truly structured for the company’s normalization or entails additional financial burdens.”

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