Samsung BioLogics soars after avoiding delisting, but what’s next?

Shares of Samsung BioLogics surged by as much as 26 percent Tuesday, following the Korea Exchange’s decision on Monday to resume their trading after deliberating the weight of local financial regulators’ conclusion that the company had breached accounting rules.

After rallying throughout the day, the shares closed at 394,000 won ($349), raising the company’s market cap to 26.69 trillion won and making it the fifth-largest company listed on South Korea’s main bourse Kospi.

The development came after the KRX’s review panel said that financial stability and continuity of business outweighed the lack of management transparency, in explaining its decision not to delist the company. Citing concerns over transparency, the bourse operator will maintain close oversight of the company’s internal management for the next three years.

Transactions of Samsung Biologics’ securities had been suspended on the main bourse since Nov. 14, when the Financial Services Commission concluded that Samsung BioLogics had violated accounting rules by inflating its profits ahead of its market listing in 2016.

At the time of the trading suspension, the company’s market cap had stood at a low of 22.1 trillion won. Following the suspension, the KRX panel had been reviewing its course of action, with the strongest measure being to delist the company from the stock market.

While freed from the possibility of delisting, Samsung BioLogics has to overcome remaining hurdles before returning to full stability, including the as-yet-unknown outcome of an administrative suit filed by BioLogics to challenge the FSC’s accounting fraud ruling.

“The KRX review panel’s decision on Samsung BioLogics is a positive event that removes market uncertainty. Though it has averted delisting, Samsung BioLogics will continue its lawsuit with the financial regulator,” said Seo Mi-hwa, an analyst at Yuanta Securities.

Moreover, the relisting of Samsung BioLogics shares has removed the “discount” factor that has been weighing down investor sentiment in the biotech sector, leading to price hikes for shares of other biotech companies, said Daishin Securities analyst Hong Ka-hye.

Samsung BioLogics said in a statement that the KRX’s decision was “very fortunate” and pledged to strengthen transparency by improving its internal audit system and taking pre-emptive measures to ensure compliance.

While Samsung BioLogics is showing signs of recovery, Celltrion, another major biotechnology company in Korea, saw its stock plunge Tuesday after news broke that the Financial Supervisory Service had begun investigating the firm for potential accounting irregularities.

According to Korean broadcaster YTN, the FSS is looking into allegations that Celltrion Healthcare, the marketing and distribution unit of Celltrion, engaged in questionable accounting practices in order to inflate its profits in the second quarter of this year.

The regulator has problematized how Celltrion Healthcare sold back the drug licensing rights it had initially acquired from Celltrion to the parent company at 21.8 billion won, which was calculated as a profit that allowed the company to avert falling into the red in the April-June period.

Celltrion Healthcare released a statement claiming that the gains constitute a legitimate form of “operating income.” However, accounting experts assert that licensing rights are an “intangible asset” that by principle should not be treated as operating income. 

Shares of Celltrion closed at 220,000 won on Tuesday, down 10.02 percent from the previous trading day. Shares of Celltrion Healthcare closed at 71,600 won, falling 12.04 percent from the previous day.

By Sohn Ji-young (jys@heraldcorp.com)