'Issuance of Convertible Bonds for Acquisition of Tangible Assets Requires Disclosure of Details'

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On the 3rd, the Financial Supervisory Service announced plans to revise disclosure formats to ensure sufficient disclosure of information related to alternative payment, such as asset types and evaluation methods.

Recently, there has been an increase in cases where listed companies issue convertible bonds (CB) or bonds with warrants (BW) in exchange for acquiring tangible assets such as unlisted stocks. The amount of CB and BW issued (or planned to be issued) through alternative payment methods by KOSPI and KOSDAQ companies surged by 353.5% over four years, from 259.4 billion KRW in 2019 to 1.1765 trillion KRW last year. When a company receives payment for CB or BW issuance in the form of tangible assets instead of cash, it is considered alternative payment. General investors find it difficult to verify information related to CB and BW issuance through alternative payment, such as acquiring tangible assets.

Currently, details related to alternative payment are recorded in the "Other Matters for Investment Judgment" section of the major event report, but in some cases, only the fact of alternative payment is simply noted, making it impossible to identify the specific assets acquired through CB or BW issuance. Therefore, the format of the "Major Event Report on CB and BW Issuance Decisions" will be revised to separately record whether alternative payment was made and detailed information about the assets paid.

Moreover, there is almost no information provided to assess whether the value of unlisted stocks or tangible and intangible assets received as alternative payment is appropriate. Even when an external evaluation has been conducted, this fact is not recorded in the "Major Event Report on CB and BW Issuance," causing inconvenience for information users who must separately search for the "Major Event Report on Asset Transfer." Accordingly, the revision will require recording the evaluation method of the paid assets and, in cases where the paid assets are stocks of unlisted companies, additional information about the relevant companies will be included.

The Financial Supervisory Service explained, "With the revision of the format, investors are expected to sufficiently confirm the investment risks inherent in CB and BW issued through alternative payment methods before investing," and added, "We will continue to provide guidance on investor precautions, focusing on the appropriateness of the evaluation methods for alternative payment assets."

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