Corporate bonds with detachable warrants (BDWs) will be no longer available for issuance from late next month in South Korea after 15 years of rocking the political and business circles
July 18, 2013 Leave a comment
Corporate bonds with detachable warrant to vanish in S. Korea
Hwang Ji-hye, Oh Soo-hyun
2013.07.17
Corporate bonds with detachable warrants (BDWs) will be no longer available for issuance from late next month in South Korea after 15 years of rocking the political and business circles. This has prompted companies to rush to issue BDWs. Buyers of BDWs can give the issuer warrant in exchange for shares and sell the shares at a market price to take profits if share price rises above the exercise price. However, the revised Capital Market Integration Act will take effect on August 29, which prohibits issuance of BDWs. The National Assembly came up with such regulations to prevent majority shareholders from employing BDWs to fraudulently gain profits or hand over their shares as inheritance. Since its adoption in 1999, BDWs became a subject of nationwide controversy when corporations such as Samsung SDS and Doosan were accused of issuing BDWs to illegally transfer shares to parties of special interest. The accusation prompted prosecutors to seek investigation into the charge. In addition, BDWs triggered political controversy during the presidential election last year, as prominent candidate Ahn Cheol-soo was suspected of having converted BDWs into stocks exceeding the bonds’ value while running a computer vaccine company. The issuance of bonds with warrants has jumped 30 percent year-on-year (yoy) this year, said local financial information provider FnGuide Wednesday.
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