As a proposed amendment to the Commercial Act mandating the cancellation of treasury shares has been submitted to the National Assembly, pharmaceutical and biotech companies have begun moving swiftly. Beyond asset monetization through instruments such as exchangeable bonds (EBs), companies are also engaging in reciprocal treasury-share swaps with friendly firms. Critics argue that pharmaceutical companies are exploiting delays in passing the amendment to engage in opportunistic maneuvers.
According to disclosures filed with the Financial Supervisory Service on the 24th, Kwangdong Pharmaceutical Co., Ltd. announced the previous day that it had disposed of 6,645,406 treasury shares worth KRW 39.7 billion (approximately USD 29.4 million) through after-hours block trades. The counterparties were Dongwon Systems Corp., Humedix Co., Ltd., and Daewoong Co., Ltd. The stated purpose of the transaction was to create business synergies and build cooperative relationships through strategic partnerships.
What stands out in this transaction is the reciprocal nature of treasury-share exchanges among pharmaceutical companies. Kwangdong Pharmaceutical sold 2,006,688 shares (3.8%, KRW 12.0 billion / USD 8.9 million) to Dongwon Systems, 2,329,567 shares (4.4%, KRW 13.9 billion / USD 10.3 million) to Humedix, and 2,309,151 shares (4.4%, KRW 13.8 billion / USD 10.2 million) to Daewoong.
At the same time, Kwangdong Pharmaceutical received 336,900 treasury shares from Humedix (3%, KRW 13.9 billion / USD 10.3 million) and 581,420 treasury shares from Daewoong (1%, KRW 13.8 billion / USD 10.2 million). In effect, companies within the same industry exchanged treasury shares with one another.
Kwangdong Pharmaceutical also plans to cancel a portion of its treasury shares—2,621,043 shares worth KRW 15.7 billion (approximately USD 11.6 million). The scheduled cancellation date is January 9 next year. Once the cancellation and disposals are completed, only 138,834 shares will remain out of the company’s total treasury holdings of 9,405,283 shares (17.94%). Previously, in October, Kwangdong Pharmaceutical sold approximately KRW 22.0 billion (USD 16.3 million) worth of treasury shares to partner companies Geumbi Co., Ltd., Samhwa Crown & Closure Co., Ltd., and Samyang Packaging Corp.
When treasury shares are cancelled, the number of outstanding shares decreases, thereby increasing the ownership percentage of existing shareholders. For this reason, treasury-share cancellation is widely viewed as a shareholder-friendly policy. However, in the case of swaps, the overall ownership structure remains unchanged, while voting rights attached to treasury shares are revived. From the perspective of controlling shareholders, such swaps can be used to secure friendly voting blocs.
Choi Sung-won, Chief Executive Officer and largest shareholder of Kwangdong Pharmaceutical, holds a 6.59% stake. Including shares held by relatives and board members, friendly ownership stood at 18.19%. Through the latest treasury-share swaps, Kwangdong Pharmaceutical is estimated to have raised its friendly stake to approximately 27% in a single move.
At Daewoong, Yoon Jae-seung, Chief Visionary Officer (CVO) and largest shareholder, holds an 11.64% stake. Including affiliated parties, his ownership reaches 38.06%. With the additional 1% stake acquired from Kwangdong Pharmaceutical through the swap, Daewoong’s friendly ownership rises to 39.06%.
Humedix is controlled by Huons Global Co., Ltd., with Yoon Sung-tae serving as the controlling shareholder of Huons Global. Their combined stake in Humedix stands at 37.5%, which increases to 40.5% when the swapped treasury shares of 3% are included.
There are no legal issues with monetizing, selling, or swapping treasury shares. However, criticism has emerged that companies are rushing to dispose of treasury shares rather than cancel them following discussions by the government and ruling party on amending the Commercial Act to mandate treasury-share cancellation—moves seen as contrary to the intent of the proposed amendment.
Last month, a Commercial Act amendment was introduced in the National Assembly under the leadership of the ruling party. The bill, proposed by Oh Gi-hyeong, a Democratic Party lawmaker and chair of the KOSPI 5000 Special Committee, includes provisions requiring companies to cancel treasury shares within one year and prohibiting the issuance of exchangeable bonds using treasury shares.
The problem is that there is currently no way to prevent companies from monetizing, selling, or swapping treasury shares before the amendment is passed. An official from Oh Gi-hyeong’s office said, “If we try to address already-issued exchangeable bonds, it could raise constitutional issues,” adding, “Some companies are issuing exchangeable bonds after the bill was introduced, so the amendment needs to be passed quickly, but that is not happening.” Regarding companies disposing of treasury shares through swaps before the bill’s passage, the official described such behavior as “malicious.”
A larger concern is that there is no clear timeline for when the amendment will be passed. The bill must go through the National Assembly’s Legislation and Judiciary Committee, but recent political disputes between ruling and opposition parties over the establishment of a special court for insurrection-related cases have overshadowed the Commercial Act amendment. Compounding the issue, the opposition party has yet to appoint a floor secretary to the committee, making it difficult to schedule meetings. Without a secretary in place, the ruling party cannot easily push the amendment through unilaterally, further delaying the legislative process.
