Celltrion tapped $364M in shares for collateral, says FSS

Celltrion has taken out a combined 410 billion won ($365.4 million) in loans using its affiliates’ shares as collateral, Financial Supervisory Service data showed yesterday.

Market observers suspect some investors strategically initiated a series of massive short-selling of Celltrion and affiliates’ shares targeting loan due dates, knowing that Celltrion is short of cash. The biopharmaceutical company cannot sell new medicines until it gets a green light from government administrators.

According to a report Celltrion submitted to the financial watchdog earlier this month, Celltrion Holdings, 97.3 percent-owned by Celltrion President Seo Jung-jin, has used 10.03 million shares as collateral and taken out 19 loans worth a combined 237 billion won from Woori Bank, Daewoo Securities and Nonghyup from June 2006 through March 29.

Celltrion SGC, a logistics affiliate of the pharmaceutical firm, of which Seo owns a 68.42 percent stake, also borrowed a combined 174.7 billion won using 6.94 million shares of stock as collateral.

About 174.7 billion won out of 410 billion won in loans are due in second quarter and Celltrion has said in a report that it has paid back 15 billion won due April 2.

“Most of the loans were taken out to defend stock prices of Celltrion and its affiliates [against predatory short-sellers],” said Kim Hyeong-gi, chief vice president of Celltrion.

A short-sale is when a third party sells stock to depress the price with the intention of buying it back and profiting on the stock’s loss.

Analysts at brokerage firms suspect there’s a link between short-selling and Celltrion’s loan due dates given that short-selling on Celltrion shares intensified as deadlines approached.

While Celltrion posted 197 billion won in net profit last year, net profits of its holding company Celltrion Holdings and Celltrion SGC were skewed, posting 13.5 billion won and 1.6 billion won, respectively.

Celltrion has two options for repaying its loans: sell shares or use company-owned shares as collateral. The latter option would cause the stock to tumble and short-sellers to buy.

“Given that short sales have increased recently and exceed 20 percent of total stock transactions, it is likely that investors targeted loan repayment deadlines,” said an analyst who asked not to be named.

“When a stock price goes down by 140 percent compared to the amount of loan, financial institutions seek a compulsory redemption of the loan if a borrower can’t provide extra collateral,” said an employee at Daewoo Securities, which granted a 55 billion won loan to Celltrion’s affiliates. “Celltrion hasn’t yet reached that point, but it will feel a burden when it extends deadlines for loan due dates.”

Celltrion isn’t the only company exposed to short-selling.

According to Korea Exchange, short-sales of Celltrion stock accounts for only 5.1 percent of short-selling transactions this year. The situation is worse for Hyundai Development Company (15.3 percent) and Amore Pacific (12.4 percent).

Hyundai and Amore Pacific, however, didn’t respond to short-selling by buying their own stakes to protect stock prices, believing short-selling cannot hurt the fundamental value of a company.

Celltrion President Seo made a surprise announcement on Tuesday that he will sell his controlling stake in Celltrion and its affiliates by seeking a buyer among multinational drugmakers.

He cited predatory short-selling as the main reason behind the move.

Seo previously created a buzz by becoming the youngest executive at now-defunct Daewoo Motor.

He established Celltrion with two former colleagues in 2000, growing the company to 4.35 trillion won in market capitalization with 1,500 employees, making him a legend among salary men.

Meanwhile, the stock price of Celltrion tumbled near daily limit of 15 percent to 36,850 won yesterday.

During trading hours it jumped as high as 3 percent after Seo said in an interview with MBC radio that he may reconsider selling the biopharmaceutical company if there is a consensus that allegations of predatory short-selling of company shares is true.

Celltrion is expected to get European Union approval for its antibody drug Remsima by June.

Other analysts said Celltrion’s No. 1 priority is to improve its earnings, not defend stock prices.

Celltrion sells its medicine to its affiliate Celltrion Healthcare, which takes charge of distribution and sales of pharmaceutical products in Korea and abroad.

Awaiting approval of Remsima, Celltrion Healthcare has stockpiled 677.8 billion won worth of products bought from Celltrion.

If Celltrion Healthcare begin sales of these products, it would leave no room for investors to initiate short-selling, market observers said.

By Kim Mi-ju, Yoon Chang-hee [mijukim@joongang.co.kr]