A growing number of South Korean companies listed on the country’s main stock exchange are issuing exchangeable bonds (EBs) backed by their own treasury shares—a move analysts say reflects last-minute efforts to tap existing rules before a looming overhaul of corporate governance laws.
The uptick comes amid political momentum behind a bill spearheaded by the ruling Democratic Party that would expand directors’ fiduciary responsibilities to shareholders and subject board decisions to greater scrutiny. Some market participants suspect companies are acting preemptively, fearing stricter restrictions on treasury stock—including forced cancellations, a measure floated during past presidential campaigns.
EBs are debt instruments that give investors the option to convert bonds into stock—usually treasury shares—if certain conditions are met. The structure allows companies to raise capital without diluting ownership through a direct equity sale. While once a tool mostly used by smaller firms for quick financing, EBs are now being deployed by larger, publicly listed corporations.
According to a
Chosun Ilbo
analysis of Korea Exchange filings, EB issuances backed by treasury shares climbed from four in 2020 to 12 in 2024. As of June 2025, 11 such deals have already been disclosed.
On June 25, SK Innovation announced a 376.7 billion won ($270 million) EB issuance to finance its purchase of SK Enmove shares from financial investor Ecosolution Holdings. Just weeks earlier, SKC issued 260 billion won in EBs to support its advanced semiconductor substrate business.
Other companies—such as MONA Yongpyong (4.6 billion won), SNT Dynamics (110 billion won), and LS (65 billion won)—have tapped EBs to fund operations, capital expenditures, or debt servicing.
Strategic moves before the rules change
Market observers say the spike in activity may be a calculated move to lock in current conditions before the legal landscape shifts.
“There has been speculation since last year that large companies were preparing for changes to the Commercial Act,” said Lee Nam-woo, chairman of the Korea Corporate Governance Forum. “This EB rush appears to be a strategy to dispose of treasury shares before new restrictions come into play.”
The proposed reforms would increase legal exposure for corporate boards, allowing them to be sued for decisions seen as harmful to minority shareholders. Critics argue that using treasury shares to issue EBs could depress share prices, potentially falling into that category.
Corporate governance critics raise red flags
Some experts warn that this trend runs counter to the original purpose of treasury shares.
“Treasury stock was designed to help companies return profits to shareholders,” said Hwang Se-woon, a senior researcher at the Korea Capital Market Institute. “Using it as a funding mechanism is difficult to justify, no matter the rationale.”
The tactic is already provoking backlash from investors. On June 27, Taekwang Industrial said it would issue 318.6 billion won in EBs backed by 270,000 treasury shares—about 24.4% of its equity. The move drew a sharp response from Truston Asset Management, the company’s second-largest shareholder.
Despite Taekwang holding 1.4 trillion won in cash and having recently secured 900 billion won from the sale of its SK Broadband stake, Truston called the bond issue “irrational” and accused the company of attempting to sidestep impending regulations. The firm said it would seek a court injunction and pursue legal action.
Taekwang’s stock dropped 11.24% on June 30 following the news.
In a statement, the company said the proceeds would fund operations and strategic investments through 2026, noting that projected capital needs exceed current available resources.
