When issuing convertible bonds (CB), disclosure is mandatory from the third quarter.

When issuing convertible bonds (CB), it is mandatory to disclose who uses the call option (the right to purchase at a fixed price) from the third quarter.

On January 27, the Financial Services Commission announced on December 27 that it will announce the amendment of the regulations from the 28th to the 11th of the next month on the revision of the “Regulations on the Issuance and Disclosure of Securities”, which includes strengthening the disclosure of information of convertible bonds and rationalizing the adjustment of the conversion value. This change is a continuation of the government’s “measures to improve the condition of the convertible bond market” announced in January.

Convertible bonds are bonds that can be converted into shares. In Korea, it is used as the main means of financing small and medium-sized venture companies by combining call options and refixing terms (adjusting conversion prices in the event of stock price fluctuations).

When appointing entities exercising a call option, the amendment requires disclosure of key issues in the form of a report, and also requires the issuer to disclose takeover plans and future plans of action (such as burning or resale) in the event of acquiring convertible bonds before the maturity date.

Current regulations require disclosure of the call exercisers when issuing convertible bonds, but most are disclosed only as “the company or the company’s designee,” making it difficult for investors to obtain information about the call exercisers. Some people point out that convertible bonds purchased before their maturity date may be used in unfair trading, e.g. resold to the largest shareholders and converted into shares in the future, which is why the amendment obliges them to be transparently disclosed.

The amendment will also allow for exceptions to the minimum refixing limit for convertible bonds (adjusted to below 70% of the original conversion price) only by way of a special resolution adopted at the general meeting.

If the value of the conversion right is diluted due to a capital increase or a share dividend, the conversion value may only be reduced by an amount greater than the value reflecting this.

The current regulations allow for exceptions (below 70%) by way of special resolutions or statutes of the general meeting where there are unavoidable reasons for standardizing management, with the aim of preventing some companies from applying exceptions using the company’s articles of association, although this is not an unavoidable reason.

Moreover, the amendment made it possible to take into account the standard market price from the “actual payment date” when calculating the conversion price.

The amendment will be implemented in the third quarter after undergoing procedures such as the review of the Regulatory Reform Commission and the resolution of the Securities and Futures Commission and the Financial Services Commission after the announcement of the change in regulations.