South Korean biopharmaceutical, healthcare firms under pressure to repay bonds

2023.01.27 10:03:01 | 2023.03.02 13:56:02

MedPacto acquired 70 billion won in convertible bonds last week to repay them [Image source: MedPacto]이미지 확대

MedPacto acquired 70 billion won in convertible bonds last week to repay them [Image source: MedPacto]

South Korean biopharmaceutical and healthcare companies are under growing pressure to repay convertible bonds as investors exercise their put options to redeem the notes amid a fall in stock prices.

According to data from the Financial Supervisory Service on Thursday, five companies including Binex Co. and MedPacto Inc. have announced debt acquisition before maturity after bond holders exercised their put option rights.

MedPacto, for example, acquired 70 billion won in convertible bonds last week to repay them. The Kosdaq-listed company had been in the red until the third quarter of last year. It had 110 billion won in cash holdings, which suggests that the bond repayment could add financial pressure on the company.

Convertible bonds refer to corporate debt that can be converted into a predetermined number of common stock shares. Investors of convertible bonds issued by biopharmaceutical and healthcare companies are exercising their put option rights and redeeming funds as stock prices plunge.

Put-option holders are expected to exercise their rights on a number of biopharmaceutical and healthcare companies this year, including Plumbline Life Sciences Inc., GeneOne Life Science Inc., Biolog Device Co., and HLB Pharmaceutical Co. Shares of these companies have plunged to below the price of when the convertible bonds were issued and the threshold at which a convertible bond can be converted into common stock.

Creditors tend to give up on the conversion and exercise their put-option rights on a company whose shares are below the convertible price.

Calls for put options can threaten biopharmaceutical and healthcare firms struggling with slipping earnings. They even find it challenging to finance clinical trials with existing funds.

“Listed companies are likely to issue new shares via shareholder allocation to raise funds as it will not be easy for them to issue convertible bonds due to market conditions,” said an unnamed official from a securities firm. “This will lead to a decline in stock prices and investor sentiment on the biotech industry could worsen.”

By Shin Yoo-geoung, Lee Changhoon, and Han Yubin

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