hankyoreh

Kim Tae-han

Samsung BioLogics has maintained its KOSPI listing status, with trading set to resume on Dec. 11 after share sales were suspended in the wake of a complaint to prosecutors concerning deliberate accounting fraud. Critics accused exchange authorities of going easy on the company by sparing it from delisting to “protect investors” despite accounting fraud involving some 4.5 trillion won (US$4.0 billion) ahead of its stock exchange listing.

The Korea Exchange (KRX) announced its decision on Dec. 10 to maintain Samsung Bio’s listing status following a review of its listing eligibility by the KRX’s company review committee. The suspension of trading on Samsung Bio stocks was scheduled to be lifted at 9 am on Dec. 11. The corporation review committee also decided not to impose an “improvement period.” The committee consists of seven members, including six legal, accounting, and academic experts and one KRX official.

“After consideration of a full range of issues including company continuity, financial stability, and management transparency, we have decided to maintain [Samsung Bio’s] listing status in consideration of company continuity and financial stability, in spite of some inadequacies,” KRX said.

In terms of Samsung Bio’s company continuity, KRX explained, “With improvements confirmed in terms of sales and profitability, we determined that there was no cause for serious concern in consideration of business prospects and the balance of and plans for orders.”

In terms of financial stability, it concluded that there was “no major risk of default on debts or other issues within the corresponding time period as a result of the capital increase by public offering in Nov. 2016 and Biogen’s exercise of its call option in Nov. 2018.”

The only area where KRX identified some inadequacies was in terms of management transparency. According to KRX, Samsung Bio submitted an improvement plan involving stronger oversight and beefed up internal accounting management unrelated to its ongoing administrative lawsuit. KRX also said it plans to check for compliance to the management transparency improvement plan over the next three years.

An expert familiar with corporate accounting issues said KRX made a swift decision to protect investors, but argued that it did not let Samsung Bio off the hook for its accounting fraud.

“They faced a situation where a long-term suspension of Samsung Bio share trading could lead to distrust toward the domestic stock market over intellectual property right protections and other issues,” the expert said.

“It was because of those concerns that the corporation review committee reached a swift conclusion without holding an additional meeting,” the expert explained.

Samsung Bio has market capitalization of over 20 trillion won (US$17.7 billion) and some 80,000 minority shareholders. But the expert also noted that the “decision to maintain listing status did not address an essential determination on the accounting fraud issue.”

Another expert said the decision stemmed from “different standards for listing validity reviews and determinations by the Securities and Futures Commission (SFC).”

“A listed company becomes subject to a listing validity review when accounting fraud comes to light, but the determination in that review is based solely on the company’s current state,” the expert explained.

“If Samsung Bio were to win in the administrative lawsuit two to three years down the road after its delisting, there’s a chance it could suffer irrevocable damage.”

Indeed, the conditions for KRX’s qualitative listing reviews include examinations of company continuity, management transparency, and financial stability.

But critics have been vocal in accusing KRX of “going easy” on a company involved in accounting fraud with its decision to maintain Samsung Bio’s listing status. Some contend that it sacrificed an opportunity to address the issue of inadequate accounting transparency, a major factor in the so-called “Korea discount” keeping down domestic companies’ stock prices.

“It’s unfathomable that Samsung Bio gets to resume stock trading when nothing has changed in terms of the SFC’s accounting fraud judgment, and nothing has changed in terms of Samsung Bio refusing to even announce changes in response to the SFC’s judgment,” said Kim Gyeong-yul, an accountant who serves as director of the economy and finance center for the group People’s Solidarity for Participatory Democracy (PSPD).

The Samsung Bio accounting fraud issue is now moving beyond the question of delisting and heading into a legal battle. Following the SFC’s decision on Nov. 14 concluding that the company committed deliberate accounting fraud and its complaint to prosecutors with a recommendation for 8 billion won (US$7.1 million) in penalties, amendment of financial statements, and dismissal of the CEO, Samsung Bio responded by filing an administrative suit with Seoul Administrative Court, along with a request to suspend execution of the decision. On Dec. 19, the court is set to hold questioning in connection with Samsung Bio’s suspension request.

“Samsung Bio had been in a position where it could present the delisting risk as grounds for asking for a suspension on the questioning date, but this decision to maintain its listing status means it no longer has that card to play,” said a source familiar with the Samsung Bio accounting issue.

Samsung Bio previously made 4.5 trillion won (US$3.98 billion) in accounting gains by changing Samsung Bioepis’s status from subsidiary to partner company on its 2015 financial statements after joint venture Biogen’s call options were discovered during the merging of subsidiary ledgers in the wake of the Samsung C&T/Cheil Industries merger. The Financial Supervisory Service (FSS) launched an inspection of Samsung Bio in 2017.

On Nov. 14, the SFC concluded that Samsung Bio had committed deliberate accounting fraud, stating that evidence showed the company to have “actively sought changes to its control and other somewhat abnormal approaches to resolve concerns about capital impairment in terms of its company financial statements.”

By Lee Wan, staff reporter

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