Not breaking the law does not mean you can hold your head high. Becoming the largest shareholder means becoming the owner of the company, not taking a seat won by turning your back on the trust of people who believed in the company and invested.Growth is not proven only by financial statements. The people who bought the stock because they trusted this company, the people who took this company's medicine because they trusted it. How they view the company is ultimately the company's real strength. People do not trust for long a company where only the Oner family was safe every time there was a crisis.
A post by a shareholder on an online stock discussion board is drawing broad sympathy. "Timing tells everything. It's a 'cherry-picking backdoor gift' timed for a stock plunge." The subject is Ilyang Pharmaceutical.
Jeong Yu-seok, CEO of Ilyang Pharmaceutical, will become the largest shareholder on the 30th by receiving a gift of 1.7 million common shares (8.70% equity) from his father, former Chairman Jeong Do-eon. The Oner third generation-centered succession of control is effectively wrapping up.
As domestic pharma stocks have fallen sharply recently, equity gifts by the Oner families are occurring one after another. All are transactions with no legal issues, but critics say the current system, in which a lower stock price reduces the gift tax burden, creates an incentive to prioritize cutting succession costs over corporate value.
◇ Stock plunges on accounting fraud scandal… gift tax down, but shareholder returns "not yet"
Ilyang Pharmaceutical(007570) was sanctioned by financial authorities last year for violating accounting standards.
It was found to have overstated net profit, shareholders' equity and other items by classifying two Chinese joint ventures as consolidation subsidiaries for about 10 years since 2014, and the Securities and Futures Commission voted to impose a penalty surcharge, designate an auditor for three years, recommend dismissal and suspend duties of the CEO, among other measures.
Afterward, the Korea Exchange initiated a substantive review of listing eligibility and suspended stock transactions for about six months. Trading resumed in Mar., but the stock did not recover. As of the 28th, Ilyang Pharmaceutical's share price is 8,270 won, more than 43% down from 14,600 won at the close just before the suspension.
The gift took place right at this time. Based on the closing price on the disclosure date, on the 30th of Jun. (7,870 won), the size of the gift is about 13.4 billion won. Applying the top rate of 50% simply, the gift tax is estimated at about 6.7 billion won.
If the stock had been at the level before the plunge, the tax burden would have been around 12 billion to 13 billion won, according to the industry. By simple math, the tax burden has fallen by about 6 billion won.
These figures contrast with the company's shareholder returns. Ilyang Pharmaceutical's total dividends last year were about 2.9 billion won. Both 2023 and 2024 fell short of 3 billion won.
The company says it has not finalized how it will use its treasury shares. An Ilyang Pharmaceutical official said, "For treasury stock, options include canceling by the grace period under relevant laws by Sep., or continuing to hold or dispose of it after approval at the shareholders meeting, but nothing has been decided so far."
It also explained that expanding its China business is an investment to enhance long-term corporate value. The company plans to prioritize allocating about 25.4 billion won secured during the liquidation of Tonghua Ilyang Health Products Co., Ltd. to investment in its Chinese subsidiary (Ilyang Pharmaceutical Jilin Co., Ltd.).
◇ Similar timing, similar choices… tax industry says "the lower the stock price, the better"
Similar cases have been occurring recently in the pharma industry.
Myung In Pharm(317450) founder Chairman Lee Haeng-myung gifted a total of 960,000 shares of equity to his two daughters in May. At the time, the stock had fallen to less than half its post-listing peak.
Korea United Pharm(033270) founder Chairman Kang Deok-young also plans to gift an additional 800,000 shares to his eldest son, CEO Kang Won-ho, next month. Once the gift is completed, Chairman Kang Deok-young's equity stake will fall from 15.61% to 10.58%, while CEO Kang Won-ho's will rise from 13.09% to 18.12%, making him the largest shareholder.
Samjin Pharmaceutical(005500) former Chairman Cho Ui-hwan likewise disclosed a plan to gift equity to the Oner second generation. It is 135,000 shares each to CEO Cho Kyu-seok and Executive Vice President Cho Kyu-hyung. When this gift is completed, former Chairman Cho Ui-hwan's stake will drop from 6.30% to 4.28%, while CEO Cho Kyu-seok's and Executive Vice President Cho Kyu-hyung's stakes will expand from 3.19% to 4.20% each.
Tax professionals believe that, under the current Inheritance Tax and Gift Tax Act, gifting listed shares during a stock downturn can create tax-saving effects. Pharma stocks have fallen a lot recently, and with the timing of Oner succession overlapping, gifts appear to have increased.
A tax expert said, "Because listed shares are valued by the average stock price over a total of four months, two months before and after the gift date, the lower the price, the lower the gift tax burden," adding, "However, this kind of tax-saving strategy is generally used more with unlisted shares, and gifts of listed shares are relatively rare."
◇ Cracking down on "stock price suppression"… National Assembly and government begin revising the inheritance and gift tax law
The National Assembly also recognizes this structural gap. The Democratic Party introduced a bill to amend the Inheritance Tax and Gift Tax Act last year.
The key is to set a tax floor by applying the unlisted share valuation method (reflecting both asset value and earnings value) instead of market price to listed shares with a price-to-book ratio (PBR) below 0.8. The logic is that even if the stock price is pushed down, the tax benefit disappears if taxes are levied based on the company's underlying asset value.
President Lee Jae-myung also backed the bill. At a Financial Services Commission briefing on the 15th, he said, "We need to secure cooperation somehow and speed this up."
There is pushback, however. Critics say using PBR 0.8 as a uniform threshold fails to reflect industry-specific characteristics. Lee Sang-mok, head of the minority-shareholder platform Act, also warned at a recent forum that "if PBR is set at 0.8, companies may game numbers to hit 0.81."
In response, the government is reportedly reviewing the use of multiple indicators instead of applying PBR as a single yardstick. The specific scope of application is expected to come into focus with the tax reform package announcement at the end of this month.