This article was published on July 7, 2025, at 5:15 p.m. on the ChosunBiz MoneyMove site.
Concerns are emerging about whether Sono International (hereinafter referred to as Sono Intern) can properly utilize its treasury shares ahead of its preliminary listing review request for the KOSDAQ. Sono Intern's treasury shares account for nearly 36% of its total issued shares, and after the listing, there is a possibility that these will need to be entirely burned under the revised Commercial Code.
Earlier this year, Sono Intern issued 210 billion won worth of exchangeable bonds (EB) secured by its treasury shares to raise funds. However, this EB structure makes it practically difficult to exchange for stock, leaving Sono Intern in a situation where it must approach the listing with a substantial amount of treasury shares still intact. As the early repayment date for the EB will not arrive until February next year, it is expected that the plan to prevent the total burning of treasury shares and implement new utilization measures will be possible only after that.
◇ Woori Investment & Securities acquires 210 billion won in exchangeable bonds... Expected to repay in early next year
According to investment banking (IB) industry sources on the 7th, Sono Intern is preparing to request a preliminary review to list on the KOSDAQ within this year. Initially, the plan was to apply by June, but concerns regarding the valuation and public offering structure have led to a delay in the application timing.
At the end of last year, Sono International's treasury shares totaled 827,157 shares, accounting for 35.93% of the total issued shares (2,302,212 shares). This is a higher level than the equity ownerships of Honorary Chairman Park Chun-hee (33.24%) and Chairman Seo Jun-hyuk (28.96%).
Treasury shares are an effective means of defending corporate management. Although they do not have voting rights, they are just like 'invisible friendly equity' under the control of the company. In the event of hostile M&As or threats to management from activist funds, corporations can transfer treasury shares to friendly forces to restore voting rights. Alternatively, they can issue EB based on treasury shares or sell them directly in the market to raise funds.
Sono Intern was able to raise 210 billion won by issuing EB to Woori Investment & Securities in February.
However, the EB issued at that time had almost no possibility of exchange for stock and is practically considered a 'private bond.' This is because the exchange price of the EB automatically adjusts to double the public offering price upon listing. For example, if the public offering price is set at 1 million won, the EB exchange price would be adjusted to 2 million won. In other words, Woori Investment & Securities can only exchange for stock if Sono Intern's share price rises to twice the public offering price after listing. This was intended to make it difficult to convert the EB to stock and prevent the dilution of the value of the major shareholder's equity.
An IB industry insider noted, 'Woori Investment & Securities did not consider exchanging for treasury shares and invested with the mindset of receiving principal and interest.'
The EB has a nominal interest rate of 5.6%, and the exercise price is set at 1,389,968 won. The maturity is in February 2028, but it can be prepaid by Sono Intern starting in February next year, one year after issuance.
According to IB industry sources, Sono Intern plans to raise funds through a combination of existing stock sales and new stock issuance during this listing process, and to repay the EB in early next year. This source indicated that 'converting EB to stock and distributing equity to outsiders is currently not considered an option for Sono Intern.'
Sono Intern is ultimately in a situation where it must approach the listing with 36% of its treasury shares. As long as collateral EB remains, it will be impossible to consider another method of utilizing treasury shares.
◇ Will it sell 36% treasury shares at a high price to affiliates or friendly corporations?
The issue is that the amendment to the Commercial Code, which is being promoted under the Lee Jae-myung government, includes 'the total burning of treasury shares of listed companies.' Although no concrete picture has emerged yet, it is reported that a measure to grant a grace period for shares already held, rather than newly acquired ones, would be given to gradually burn all of them.
If Sono Intern plans to list at the end of this year, it must take time to devise measures for handling treasury shares. The 36% is a burdensome amount for the company to burn entirely. Assuming a market capitalization of 4 trillion won post-listing, it would amount to approximately 1.44 trillion won.
Since Sono Intern's treasury shares are tied to the EB for exchange, the company is expected to reveal new utilization measures for its treasury shares only after repaying them, which could be as early as February next year.
Industry insiders believe that Sono Intern could consider issuing treasury share-based EB to a third party or attracting investments from affiliates or friendly corporations while granting call options on treasury shares. In this case, the exercise price for the call option must be equal to or higher than the market price. Providing a call option with a premium over the market price could preemptively block discussions of breach of fiduciary duty or self-dealing under the Commercial Code.
A representative from Sono Intern stated, 'The treasury shares we hold were not acquired for the purpose of burning; we plan to utilize them for sale,' but added, 'However, we have not considered granting call options on treasury shares to affiliates.'
A capital markets attorney explained, 'Selling treasury shares in the market after listing is the most realistic option.'