This article appeared on the capital markets compass "Signal" at 5:20 p.m. on July 29, 2026.
Mezzanine investors holding instruments backed by Kolon TissueGene (950160) shares have entered loss territory following the release of the company's Phase 3 clinical trial results. Investors who were unable to convert their holdings into stock amid the sharp share decline accounted for 80% of the total. Some holdings include exchangeable bonds (EBs) that carry no refixing mechanism to cushion against share price declines and no right to demand principal repayment, leaving investors with little choice but to wait for a share price rebound.
According to the investment banking (IB) industry on the 29th, convertible bonds (CBs) and EBs issued using Kolon TissueGene shares as underlying assets since last year total 239 billion won. These include CBs issued by Kolon TissueGene in February (56.5 billion won) and September (122.5 billion won) last year, along with an EB (60 billion won) issued by Kolon (002020) in March this year with Kolon TissueGene shares as the exchange target.
Kolon TissueGene's share price soared to 149,000 won in May this year but plunged immediately afterward, complicating calculations for mezzanine investors. As of the 29th, holdings for which conversion or exchange requests have not even been exercised are estimated at 193.7 billion won. Specifically, 138.5 billion won in CBs and 55.2 billion won in EBs remain in bond form. The difficulty in converting to stock is attributed to Kolon TissueGene's current share price, which has fallen to 13,200 won, far below the conversion and exchange prices of those holdings.
Kolon TissueGene's share price fell sharply following the U.S. Phase 3 clinical trial results for its osteoarthritis treatment (TG-C). After the first Phase 3 trial result for TG-C failed to meet statistical significance on the 20th of this month, the company's share price fell to the daily lower limit for three consecutive trading days starting on the 21st.
The problem lies with those who invested in the Kolon EB. Unlike the Kolon TissueGene CBs, the EB does not guarantee a refixing mechanism or the right to early redemption. With an interest rate of 0%, unless the share price recovers to the exchange price, principal recovery remains the best outcome for investors. An IB industry official explained, "There is no refixing mechanism, nor any specified provision regarding early redemption rights, so waiting for a share price rebound would be the reasonable option at this point."
By contrast, institutions that invested in the Kolon TissueGene CBs are expected to take a wait-and-see approach for the time being. Those CBs carry a refixing mechanism that allows the conversion price to be adjusted downward from the level set at the time of contract to reflect share price declines. Since they can also demand principal repayment from the company starting next year, they may be able to recover their principal earlier than maturity if Kolon TissueGene's share price recovery proceeds slowly.
