This article was displayed on the ChosunBiz MoneyMove (MM) site at 4:30 p.m. on Mar. 5, 2026.
Institutional investors who invested in Kolon TissueGene's convertible bonds (CB) on the KOSDAQ are expected to book hefty gains despite the short holding period.
At first glance, the recent disclosure on CB conversions looks like a transaction in which conversion rights were exercised at a price higher than the market price, implying a loss, but industry analysts say investors will actually reap gains of 2.5 to 7 times. At the same time, overhang concerns (potential sell orders waiting on the sidelines) also appear larger than what the disclosure wording suggests, because supply close to 10% of total market capitalization is waiting.
According to investment banks (IB) and the Financial Supervisory Service's electronic disclosure system on the 5th, Kolon TissueGene disclosed on the 4th that conversion rights had been exercised on portions of its 2nd and 3rd CBs. The 2nd CB is worth 1 billion won, with a conversion price of 71,285 won. By contrast, 31.5 billion won of the 3rd CB converts at 192,210 won.
Kolon TissueGene moved to raise funds in 2024 ahead of phase 3 clinical trials for TG-C (formerly Invossa), an osteoarthritis treatment. In June that year, it issued 24.5 billion won of the 2nd CB, followed by 56.5 billion won and 122.5 billion won via the 3rd and 4th CBs, respectively, in 2025. Investors included securities firms such as Eugene Investment & Securities and Hanyang Securities, and asset managers such as GVA Asset Management and Korea Investment Value Asset Management.
Investors appeared to have stock conversion in mind rather than holding to maturity. Both the coupon rate and the yield to maturity were 0%, making interest income difficult to expect. For investors to earn returns beyond principal, stock conversion and share price appreciation had to occur together.
For the 31.5 billion won of the 3rd CB converted this time, the conversion price at first glance is higher than the current share price. Kolon TissueGene's current share price is in the 100,000 won range. A simple calculation of the conversion price makes it look as if only half of the investment would be recovered.
However, this is an illusion arising from the fact that Kolon TissueGene, a U.S. entity, is listed on the domestic stock market in the form of Korea depositary receipts (KDRs). For each 1 share of the underlying U.S. stock, 5 KDRs are listed on the KOSDAQ. One share of the U.S. underlying can be exchanged for 5 KDRs listed on the KOSDAQ, and conversely, 5 KDRs can be exchanged for 1 share of the U.S. underlying.
Because Kolon TissueGene's CB conversion price is set based on the U.S. underlying share, CB investors effectively need to multiply the current price by five. Given that the 3rd CB conversion price of 192,210 won yields 5 KDRs, the market value comes to about 500,000 won. That is a 2.5-fold gain in one year. Investors in the earlier 2nd CB can earn about a sevenfold gain in two years.
In other words, retail investors need to recognize that the pending supply to come is five times larger than what currently appears in disclosures.
Considering that the CBs issued to date amount to about 1,199,311 shares on an underlying basis, that translates to 5,996,555 shares in KDR terms. Given that Kolon TissueGene has about 83.25 million shares outstanding, if all CBs are converted, nearly 7% in new shares could be issued.
An official in the investment industry said, "Unlike typical CBs, there is a fivefold disconnect from the share price, so the impact from stock conversion is far greater than what meets the eye," adding, "Given the CB structure, it is highly likely that all the volume will be converted, which could spark large-scale overhang concerns."
Fortunately, Kolon TissueGene's share price has surged recently. After hovering in the 10,000 won range in 2024, the stock topped the 20,000 won range early last year and has recently jumped into the 100,000 won range. Expectations appear priced in for phase 3 results of the osteoarthritis drug candidate TG-C, slated to be announced in the second half of this year.
TG-C is an osteoarthritis treatment that mixes normal chondrocytes with genetically modified cells and injects them directly into the joint. Unlike existing treatments that merely alleviate osteoarthritis symptoms, it is cited as a disease-modifying osteoarthritis drug (DMOAD) candidate that regenerates cartilage. No DMOAD has yet been approved by regulators.
The legal risks sparked by the "Invossa incident" are also entering a resolution phase. Invossa was approved in Korea in 2017, but during clinical trials in the United States it was found to contain unapproved cells. In 2019, the Ministery of Food and Drug Safety ordered a sales suspension and revoked the product approval for Invossa. Trading in Kolon TissueGene's shares was subsequently halted. Shareholders filed damages suits against Kolon TissueGene and Kolon Life Science, but in trials concluded recently, the companies prevailed in all cases.