2023-07-20 04:34:00
Financial authorities and other capital market officials voiced the need to prevent unfair trade by improving transparency in the issuance and distribution markets of convertible bonds. However, concerns were raised that excessive regulations, such as limiting the issuance of convertible bonds to a certain level or preventing the issuance of call options (rights to request early repayment), would shrink the financing of SMEs.
On the 20th, Vice Chairman Kim So-young of the Financial Services Commission held a seminar on ‘Measures for Enhancing Fairness and Transparency in the Convertible Bond Market’ held at the Korea Exchange in Yeouido, Seoul. It is becoming a means of unfair trade with conditions such as call options and refixing (adjustment of conversion price) granted to debentures.” “he said.
Equity-linked bonds, such as convertible bonds, are mostly in the form of private placement. Prior to 2012, the number of public offerings accounted for more than 25%, but it has been on a downward trend since 2013, and only 5 out of 214 stock-related bonds issued in the first half of this year were public offerings. In the case of privately placed convertible bonds, there is no obligation to submit a securities report, so the Capital Market Research Institute analyzes that most cases are disclosed through a report on major issues one day before the payment date or on the same day.
In response, Kim Pil-kyu, a senior researcher at the Capital Market Research Institute, argued, “It is necessary to make disclosure through a report on major matters one week before the payment date following the resolution of the issuing board of directors, just like a private equity capital increase.”
In addition, many domestic convertible bonds are issued with call options, and it was pointed out that the purpose is to secure shares for the largest shareholder or a specially related person. It was also mentioned that the call option exerciser is usually disclosed as ‘the company or the person designated by the company’, and even if the call option exerciser is designated later, there is no disclosure obligation, so the provision of information is opaque.
As improvement measures, it was introduced that when a call option exerciser is designated, the exerciser and whether the price is received or not are disclosed, or the Capital Markets Act is amended to block the free transfer, sale or grant of a call option at the source.
Refixing is also one of the special options seen in the domestic market. Researcher Kim Pil-gyu said, “It is difficult to find cases where the exercise price is recalculated in overseas countries except for Japan. In particular, domestic convertible bonds have a problem of diluting the value of existing shareholders with options such as refixing.” It should be allowed to adjust to less than 70% of the initial conversion value only for the issuance of individual convertible bonds that obtained ‘.
Under the current regulations, it is possible to lower the ratio to less than 70% even if it is stipulated in the articles of incorporation in advance.
In addition, a plan was announced to limit the issuance of convertible bonds to third parties within 20% of the total equity and the limit of issuing convertible bonds within 100% of the total equity.
However, there were also concerns that, despite the existence of a normal convertible bond market issued to finance innovative venture companies, uniform regulation would cause adverse effects such as a funding crunch.
Yeon-ho Yeon, head of Corporate Finance Division 2 at KB Securities, said, “Companies with excellent quality can issue convertible bonds without a refixing option, but there are companies that do not.” We need a plan,” he said.
Jin Seong-hoon, head of the research policy group of the KOSDAQ Association, also expressed concern regarding regulations such as limiting the issuance limit, saying, “Considering the situation of small innovative companies that must raise funds in a timely manner, the process of issuing convertible bonds should be relatively easy.”
In response, the Financial Services Commission announced that it would improve the system by comprehensively considering the original purpose of convertible bonds to prevent them from being misused for unfair transactions.
Meanwhile, at the seminar, Kim Woo-jin, a professor at Seoul National University’s Business School, ▲Hyun Seung-ah, a lawyer at Law Firm Lee & Ko, ▲Yeon Dae-ho, head of Corporate Finance Division 2 at KB Securities, ▲Jung Woo-yong, policy vice president of the Listed Company Council, ▲Jin Seong-hoon, head of research policy group at the KOSDAQ Association, and ▲ Jeong Sang-ho, managing director of KOSDAQ Market Headquarters, Korea Exchange ▲Kim Gwang-il, head of the Fair Market Division of the Financial Services Commission, and others attended.
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