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Amendment to Regulations on the Issuance and Disclosure of Securities with Respect to Strengthened Regulations on Issuance of Convertible Bonds by Listed Companies


On October 27, 2021, the Financial Services Commission announced that the Regulations on the Issuance and Disclosure of Securities (the “Regulations”) will be amended to place a limit on convertible bond purchase option (call option) and to impose an obligation to raise the conversion price in case of a private placement.  These amended Regulations will take effect on December 1, 2021 and the proposed Regulations are follow-up measures to the Comprehensive Measures to Eradicate Illegal and Unsound Practices in the Securities Market (October 19, 2020).  The key amendments are as follow:

1.   Disclosure of exercise of convertible bond purchase option granted to a third party: A listed company must disclose material facts (e.g., person exercising the right, number of shares converted by such exercise) by filing a report on any of its important matters pursuant to Article 161 of the Financial Investment Services and Capital Market Act (the “FSCMA”) in the following cases: (a) a listed company issues convertible bonds that grants a third party right to purchase convertible bonds at a predetermined price (convertible bond purchase option) and the third party exercises such option, or (b) a listed company decides to acquire convertible bonds that the company itself issued and sells them to a third party. 

2.   Imposition of a limit on the exercise of call option by the largest shareholder with respect to convertible bonds: When a listed company issues convertible bonds that grant convertible bond purchase option to the largest shareholder and its specially related parties, the exercise of convertible bond purchase option will be limited to the shareholding ratio of the largest shareholder at the time of issuance of convertible bonds.  

3.   Improvement on conversion price adjustment system: For issuance of convertible bonds by private placement, If the conversion requirement for convertible bonds includes downward adjustment of conversion price (refixing) when there is a change in the market price of the shares, the conversion price must be adjusted to what it was at the time of issuance if the market price of shares increases after the downward adjustment (or up to such adjusted price in the event that the conversion price is modified due to adjustment events such as issuance of new shares at a discounted price or capital reduction other than refixing).  The foregoing Regulations shall also apply mutatis mutandis to issuance of bonds with warrants, but these regulations do not apply to public offerings. 

This amended Regulations are significant since they have strengthened regulations on refixing, which are frequently included in the issuance of convertible bonds and bonds with warrants by listed companies.  Please be advised of the foregoing amended Regulations as they will apply to, among others, convertible bonds of which the issuance will be resolved by the board of directors of listed companies after this amendment takes effect on December 1, 2021.  


[Korean version]