As previously communicated (Link), following the implementation of the amended Korean Commercial Code (the “KCC”), a court issued the first injunction regarding the issuance of bonds exchangeable for treasury shares, which recognized the legitimacy of the business judgment of management with respect to such issuance. Since then, a significant number of listed companies have disclosed plans to either dispose of their treasury shares or issue bonds exchangeable for treasury shares, and this development is drawing significant attention from the market. In response, the Financial Services Commission has announced proposed amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act, the aim of which is to strengthen disclosure requirements for listed companies regarding their treasury stock holdings and disposal plans. Specifically, the disclosure requirements will be expanded from mandatory annual disclosures for treasury share holdings of 5% or more, to semiannual disclosures for holdings of 1% or more.
As part of these enhanced regulations regarding the disposal and disclosure of treasury shares, the Financial Supervisory Service (the "FSS") announced on October 16, 2025 an improvement to the disclosure system to ensure that key information related to the issuance of exchangeable bonds backed by treasury shares is fully provided to investors. Accordingly, the disclosure form will be revised to require inclusion of critical information on the issuance of exchangeable bonds, such as the impact on existing shareholders' interests. Going forward, any violations of disclosure obligations regarding the holding or disposal of treasury shares will be subject to strict enforcement.
According to the FSS announcement, 50 exchangeable bond issuances were planned in the third quarter of 2025, totaling approximately KRW 1.5 trillion, a number surpassing the 28 total issuances amounting to KRW 986.3 billion for all of 2024. Especially notable is the recent surge, with 39 exchangeable bond issuances amounting to approximately KRW 1.2 trillion planned in September 2025 alone, accounting for roughly 78% of the total issuances (by number) scheduled in the third quarter.
In particular, the FSS’s announcement has garnered attention for its detailed explanation of concerns and precautions regarding the issuance of exchangeable bonds backed by treasury shares. According to the announcement: (a) from a company’s perspective, if exchangeable bonds are issued hastily without thorough consideration of other financing options and assessment of needs, the trust of shareholders (who may have anticipated shareholder returns through cancellation of treasury shares) could be undermined, potentially harming corporate value; (b) from the capital market’s perspective, the market has generally reacted negatively, as evidenced by declining stock prices following decisions to make such issuances; and (c) from an investor's perspective, most issuances of exchangeable bonds are accomplished through private placements, and despite the possibility of resale, investors experience difficulties in obtaining sufficient information necessary for investment decisions, such as the rationale behind the issuance and the details of feasibility assessments.
To address these issues, the FSS plans to revise the disclosure standards so that, effective immediately from October 20, 2025, all key information - including the impact on shareholder interests - must be detailed in both the key information report for issuing exchangeable bonds and the key information report for disposing of treasury shares.
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When issuing exchangeable bonds backed by treasury shares, the following information must be specifically and thoroughly included in the "Other Matters to Consider When Making Investment Decisions" section of the Key Information Reports for "Issuance of Exchangeable Bonds" and "Disposal of Treasury Shares”: (1) Reasons for choosing to issue exchangeable bonds backed by treasury shares instead of other financing methods; (2) Review of the appropriateness and rationale for the timing of the issuance; (3) Potential impact on the company’s governance structure and decision-making in the event of an actual share exchange; (4) Anticipated impact on interests of existing shareholders; (5) Plans regarding the possible resale of the exchangeable bonds or exchanged shares after the issuance (including the terms and conditions of any advance agreements); (6) Name of arranger(s) involved, if any. |
In its recent announcement, the FSS also emphasized that the financial authorities will institute strict measures, including the issuance of corrective orders and the imposition of administrative fines, in response to any future violations of disclosure requirements related to treasury shares. The FSS also advised companies to take great care when disclosing matters pertaining to the holding or disposal of treasury shares, including under the revised regulations.
As explained previously, the government and the National Assembly continue to discuss the proposed third amendment to the KCC, which would mandate, among other things, the cancellation of treasury shares (Link), and, as a result, there has been increasing scrutiny from minority shareholders and other stakeholders regarding the disposal of treasury shares through means such as the issuance of exchangeable bonds.
In particular, the disposal of treasury shares is closely tied to directors' duty under the amended KCC to protect shareholders' interests. Therefore, the new disclosure requirements introduced by the FSS’s strengthened regulations should not only be seen as a matter of regulatory compliance, but should also be specifically reviewed and deliberated by directors when making decisions about disposing of treasury shares through the issuance of exchangeable bonds. It is also advisable for companies to keep proper records of such discussions to ensure that the directors fulfill their obligations and mitigate risks of potential liability.
