Publicly Listed Companies Required to Make Prior Disclosure of Privately Placed Convertible Instruments under Strengthened Securities Regulation

As addressed in our earlier newsletter (Link), the Financial Services Commission (“FSC”) is working to enhance corporate governance by strengthening regulations on privately placed convertible instruments, including convertible bonds and bonds with warrants (“Privately Placed Convertible Instruments”). Indeed, on May 28, 2024, the FSC announced a proposed amendment to the Regulation on the Issuance and Disclosure of Securities (“Securities Regulation”). Subsequently, on November 13, 2024, the Securities Regulation was amended to (i) strengthen regulations on disclosures regarding the issuance and circulation of convertible bonds, bonds with warrants and (redeemable) convertible preferred shares, (ii) strengthen the conversion price adjustment (i.e., refixing) mechanism of such securities, and (iii) clarify on the appropriate base date for calculation of conversion prices.

Relatedly, the Financial Investment Services and Capital Markets Act (“FSCMA”) was further amended on January 21, 2025. Such amendment is expected to take effect on July 22, 2025, and aims to ensure fairness in the issuance of Privately Placed Convertible Instruments. The amendment enhances transparency for investors by (i) requiring companies that submit business reports (“Publicly Listed Companies”) to make prior disclosures of Privately Placed Convertible Instruments and (ii) expanding the scope of disclosures required of companies submitting business reports for the first time (i.e., newly listed companies). Regulations subordinate to FSCMA, namely the Enforcement Decree of FSCMA and the Securities Regulation (together with FSCMA, the “Amended Regulations”), were also amended with effect on July 22, 2025. The amendments to the Securities Regulation as announced on May 22, 2025 are as follows:

Accelerated Disclosure Time Frame for Issuance of Privately Placed Convertible Instruments

Previously, Publicly Listed Companies had to make a disclosure of material information that their board of directors decided to issue Privately Placed Convertible Instruments by the next day after the board decision. As a result, the disclosure often came just before the payment due date for the issuance. This timing made it difficult for shareholders to request a suspension of the issuance under the Korean Commercial Code, even where the issuance violated applicable laws and regulations, due to lack of advance notice.

Indeed, for Privately Placed Convertible Instruments issued in 2023, the timing of the required disclosure of material information came as follows:

Disclosure of material information made on the payment due date or one day prior to the payment due date: 13.6%
Disclosure of material information made within six days prior to the payment due date: 53.8%

To address the foregoing and enhance general shareholder protections, the amendments to the Securities Regulation will now require that Publicly Listed Companies that decide to issue Privately Placed Convertible Instruments on or after July 22, 2025 disclose such material information by the earlier of (i) the day following the date of decision of the issuance of Privately Placed Convertible Instruments and (ii) one week prior to the payment due date.

Disclosure of Immediately Preceding Quarterly and Semi-Annual Reports Mandatory for Companies Submitting Business Reports for the First Time

Previously, companies submitting business reports for the first time had to submit their reports for the prior fiscal year, within five days of the submission obligation arising, or by the regular submission deadline for obligations arising during a regular submission period. However, because such companies were not required to disclose prior quarterly or semi-annual reports, investors lacked sufficient information on business or financial status immediately preceding the public listing or issuance of securities.

To address the foregoing and enhance protections of investors in newly listed companies, etc., the amendments to the Securities Regulation will now require that companies required to submit their business reports for the first time on or after July 22, 2025 disclose prior quarterly or semi-annual reports for the immediately preceding period within five days of the submission obligation arising in addition to their business report for the prior year. The amendment aims to alleviate issues of delayed responses in stock prices, due to disclosure three months after the listing of poor performance in the quarter leading up to the listing contrary to projections presented during the listing process.

Once the Amended Regulations take effect on July 22, 2025, prior disclosure will be required of Publicly Listed Companies in respect of Privately Placed Convertible Instruments. Upon such advance notice, minority shareholder rights may be exercised or legal disputes raised to the extent of violation of laws and regulations or infringements of shareholder interests with respect to the issuance of the Privately Placed Convertible Instruments. In addition, now with the required disclosure of quarterly and semi-annual performance immediately preceding the listing, companies must closely monitor for issues that may arise from performance in such periods falling short of projections presented by the company during the listing process.

Generally, Publicly Listed Companies contemplating financings or corporate restructuring transactions involving Privately Placed Convertible Instruments must consider the stricter regulations outlined above in pursuing such financing structures.

[Korean Version]

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