Financial authorities will tighten disclosure standards for exchangeable bonds (EBs) issued on the basis of corporations' treasury shares. As domestic corporations' EB issuance surged sharply in the third quarter of this year, the move is seen as reflecting concerns about negative effects on the market.
The Financial Supervisory Service said on the 16th that starting on the 20th, when issuing exchangeable bonds based on treasury shares, issuers must include investor reference information such as the rationale for issuance and the validity of the timing.
According to the FSS, decisions to issue exchangeable bonds in the third quarter of this year totaled 50 cases worth 1.4455 trillion won. This far exceeds last year's total issuance of 28 cases worth 986.3 billion won.
The pace of exchangeable bond issuance is also accelerating. In September, 39 cases were decided, accounting for 78% of the third quarter's total of 50 cases. In amount terms, issuance decided in September alone reached 1.1891 trillion won out of the third quarter's 1.4455 trillion won.
The FSS said, "If exchangeable bonds are pushed hastily without fully reviewing various financing methods and needs, trust with shareholders who expected shareholder returns is damaged," and noted, "Actual stock exchanges may change shareholders' equity ratios or lead to third-party equity acquisitions, potentially affecting governance and decision-making."
Most cases also showed exchangeable bond issuance leading to share price declines. Of the 36 companies that disclosed EB issuance in September, 25 saw their share prices fall the next day. If EB issuance continues, there are concerns about negative effects across the stock market due to weakened investor sentiment.
The FSS said, "We will encourage the establishment of shareholder-centered management practices, including having issuers review EB issuance more carefully from the perspective of shareholders," and added, "We expect that providing investors with sufficient information will enable the market to make cool-headed judgments and assessments."