Recent trends show that pharmaceutical and biotechnology companies listed on the stock market are increasingly buying back convertible bonds (CBs) before their maturity due to poor stock performance. As stock prices fall significantly below the conversion price, investors are opting for early redemption instead of converting to shares. Many of these companies are already facing losses, and the additional cash outflow from early CB redemption is exacerbating their financial burdens.
According to the Financial Supervisory Service's electronic disclosure system, there have been a total of 60 announcements regarding 'self-redemption of convertible bonds before maturity' by listed companies in the past three months. Among these, 12 announcements were made by pharmaceutical and biotechnology firms, representing the largest share.
Convertible bonds allow investors to convert them into shares at a predetermined price after a certain period. If the stock price exceeds the conversion price, investors can convert their bonds to take advantage of capital gains. Conversely, if the stock price falls below the conversion price, the incentive to convert diminishes. In such cases, investors may exercise their early redemption rights (put options) to recover their principal and interest, or companies may negotiate with bondholders to buy back the CBs before maturity.
The largest early redemption of CBs was made by Samsung Pharmaceutical. On August 12, the company decided to buy back 20.225 billion won of its 32nd series of CBs, which were issued for 26.9 billion won last year. This buyback occurs just one year after issuance. Of the total amount, 5.2 billion won was due to the exercise of the put option by bondholders, while the remaining 15.025 billion won was acquired through negotiations with bondholders.
HLB BioStep also redeemed CBs early in July, with a total buyback amounting to 15.75 billion won, making it the second-largest after Samsung Pharmaceutical. On July 14, the company negotiated to buy back 9.75 billion won, and on July 21, it repurchased 6 billion won due to put option exercises. Sharperon, facing a delisting crisis, is in an even worse situation. The company issued its first series of CBs worth 8.6 billion won in April and decided to buy back the entire amount just four months later on August 11 through negotiations with bondholders.
The increase in early CB redemptions among pharmaceutical and biotechnology companies is attributed to poor stock performance. On the payment date of August 21, Samsung Pharmaceutical's stock closed at 1,250 won, about 21% below the conversion price of 1,591 won for the 32nd series of CBs. HLB BioStep's stock prices on July 14 and August 13 were 1,852 won and 2,540 won, respectively, both significantly lower than the conversion price of 7,990 won, by 76% and 68%. Sharperon's stock closed at 614 won on August 11, less than half of the conversion price of 1,685 won.
Industry analysts point out that these companies find themselves in a paradoxical situation where they sought to easily raise funds through CB issuance but are now forced to make substantial cash payments due to poor stock performance. The issue is compounded by the fact that most of these companies are in poor financial health. Sharperon reported only about 100 million won in revenue for the first half of the year, with an operating loss of 6.7 billion won and a net loss of 7.2 billion won. HLB BioStep also recorded operating and net losses of 4.5 billion won and 5.6 billion won, respectively, during the same period. Samsung Pharmaceutical reported a net loss of 47.8 billion won for the first half of the year.
Given this situation, the early redemption of CBs could further strain their operations. An industry insider noted, "Due to the nature of pharmaceutical and biotechnology companies, which require continuous cash input for research and development, many seek external funding through CB issuance. If early redemption worsens cash flow, it will inevitably disrupt research and development efforts."
* This article has been translated by AI.
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