The issuance of exchange bonds (EB) in the first half of this year was recorded to have more than doubled compared to the same period last year. This is due to corporations issuing exchange bonds based on their own stocks to raise funds before and after the new government's emphasis on stock buybacks.
According to the Korea Securities Depository on the 30th, the issuance scale of exchange bonds in the first half of this year (January 2 to June 27) is 1.244 trillion won, which is 2.16 times the total issuance of 575 billion won in the first half of last year.
Exchange bonds are corporate bonds based on the company's own shares or shares of other corporations. Investors can convert to stocks and sell for a profit if the stock price is higher than the exchange price, or hold until maturity to receive interest.
The issuance scale of exchange bonds surged from 939 billion won in 2023 to 2.058 trillion won in 2024. With more corporations announcing plans to issue exchange bonds, the issuance scale this year is expected to exceed last year's figures significantly.
This month, SKC has scheduled exchange bond issuance of 260 billion won, SK Innovation 376.7 billion won in July, and Taekwang Industrial 318.6 billion won in August. Just the issuance from these companies exceeds last year's total issuance scale by about 141.6 billion won.
There is no issue with corporations raising funds through exchange bonds. However, the market suspects it is a trick to avoid stock buybacks. This is due to the sharp increase in exchange bond issuance linked to the government's corporate value-up program and the stock buyback mandate emphasized by President Lee Jae-myung during his candidacy.
The exchange bond issuance by Taekwang Industrial is a representative case. Taekwang Industrial has a high ratio of 24.41% for its own stock holdings in relation to the number of shares issued. On the 27th, Taekwang Industrial decided to issue exchange bonds based on all of its own shares. The company stated that the reason for issuing the exchange bonds is to secure funding for new business.
However, as of the end of March this year, Taekwang Industrial has cash and cash equivalents amounting to 522.9 billion won. It also received 777.6 billion won last month from the sale of SK Broadband shares. On the other hand, short-term borrowings maturing within a year amount to about 87.7 billion won. This means that the company has over 1 trillion won in accessible cash and cash equivalents, indicating that immediate fund procurement is not urgent.
Truston Asset Management, the second-largest shareholder of Taekwang Industrial, claimed that the company's issuance of exchange bonds is "not a rational business judgment but a trick to evade recent government initiatives for revising commercial law and shareholder protection policies, which is also illegal." The firm has also indicated that legal action, including an injunction to stop the issuance of exchange bonds, is forthcoming.
As instances of corporations issuing exchange bonds instead of conducting stock buybacks continue, stock prices that had risen due to expectations are changing to a downward trend. As of 1:50 p.m. that day, Taekwang Industrial's stock price had fallen 22.2% compared to its peak earlier this month. Similarly, companies with high stock ownership ratios, such as Shinyoung Securities -14.5%, Chokwang Leather -10.8%, ILSUNG IS -8.7%, Infovine -8.5%, and MAKUS -7.6%, also saw their stock prices decline.