Celltrion Holdings, the holding company of a biopharmaceutical company Celltrion with the highest market capitalization in the KOSDAQ market, was fined 2.4 billion won (US$2.1 million) for violating standards on holding subsidiaries’ stocks along with a correction order from authorities.
On September 7, according to the Fair Trade Commission, Celltrion Holdings owned a 19.28% stake in Celltrion, a subsidiary of Celltrion Holdings in violation of standards on holding companies’ holding subsidiaries’ stocks on April 23, 2016.
Article 8 of the Fair Trade Act stipulates that a holding company has to own at least 20% of the total number of shares issued by a subsidiary when the subsidiary is a listed company and 40% if it is not.
Celltrion Holdings has owned 20% of Celltrion's shares since it was converted into a holding company in November 2010. However, due to a stock conversion request for overseas convertible bonds, the percent of Celltrion’s shareholding slid to 19.91% on April 23, 2015.
Afterwards, a one-year grace period specified by the Fair Trade Act expired on April 23, 2016 but the holding company still fails to regain 20% and is subject to punishments. Celltrion Holdings’s stake in Celltrion stood at 19.76% as of August 31.
Therefore, the Fair Trade Commission ordered the Celltrion to own more than 20% of the issued shares within six months after receiving the order, levying a penalty of 2.43 billion won (US$.18 million).
The Moon Jae-in administration and the ruling Minjoo Party is going ahead with the revision of the Fair Trade Act to raise the required percentage of a holding company’s stake in its subsidiary from 40% to 50% when the subsidiary is not listed, from 20% to 30% when it is listed and lower the debt-to-equity ratio from 200% to 100%. Therefore, holding companies’ burdens may increase because of the revision.
Since Celltrion's market capitalization is upwards of 14 trillion won (US$12.6 billion), Celltrion Holdings needs 1.4 trillion won (US$1.2 billion) to raise its stake in Celltrion by 10%p.