According to documents Cory submitted for its Hong Kong listing on Aug. 20, Cory Group entered into a contract with Hanmi Pharmaceutical Group that includes the right to be given priority consideration under the same conditions before Beijing Hanmi selects another distributor, as well as a right to refuse contract termination. Cory Group is known to distribute pharmaceuticals through its subsidiary, Runmeikang.
Under the contract, before Hanmi Pharmaceutical Group signs a deal with another pharmaceutical distributor, it must first present the new distribution conditions and terms to Cory Group. Cory Group is also guaranteed the right to accept those conditions and terms. For Beijing Hanmi to contract with another distributor, it must obtain Cory Group's approval, effectively giving Cory Group exclusive rights.
The contract also includes a clause preventing Hanmi Pharmaceutical Group from unilaterally terminating the agreement with Cory Group. Termination requires mutual agreement between Hanmi Pharmaceutical Group and Cory Group. Beijing Hanmi distributes pharmaceuticals to hospitals, while Cory Group handles distribution outside hospitals — and the clause allowing contract termination only through mutual agreement is also viewed as highly unusual.
The problem is that Beijing Hanmi and Cory Group are both linked to Lim Jong-yoon, a director (chairman of the board) and member of Hanmi Pharmaceutical's owner family. Analysts say such a contract was likely possible because Director Lim oversees both Beijing Hanmi and Cory Group. An official in the investment banking industry explained, "It is a situation where Hanmi Pharmaceutical's subsidiary is continuously supporting a company personally owned by the owner family."
The market is focused on whether Hanmi Pharmaceutical Group's management was aware of the contract's contents. That is because a clause requiring the continuation of the contract with Cory Group — even when a deal could be struck with another distributor on better terms — could potentially violate the revised Commercial Act.
There is also a possibility that Hanmi Pharmaceutical's management was unaware of it. Beijing Hanmi recently dismissed General Manager Lim Hae-ryong and newly appointed General Manager Luo Zhenhua. Former General Manager Lim served as a director in charge of general hospital sales at Hanmi Pharmaceutical before being appointed deputy general manager of Beijing Hanmi in 2007, overseeing local sales. A long-serving professional executive who ran Beijing Hanmi for about 16 years has been replaced.
The personnel change at Beijing Hanmi is known to have been driven by Director Lim. Accordingly, at Hanmi Pharmaceutical's board meeting late last month, CEO Hwang Sang-yeon was reportedly pressed on whether he had been aware of it. Hwang is said to have responded to the effect that he was not aware of the replacement of Beijing Hanmi's general manager.
Beijing Hanmi's accounts receivable from Cory Group has surged to around 90 billion won. Hwang and other Hanmi Pharmaceutical executives are further strengthening the group's receivables management system and reviewing improvement measures, including a collection plan and steps to prevent recurrence.
