Samsung BioLogics' shares slide again; unit's valuation jump questioned

Samsung Securities Co

03/05/2018 11:16

* Co increased unlisted unit's valuation by 18 times in 2015
    * Co says followed accounting rules, experts' recommendation
    * Shares fall 3.5 pct after Wednesday's up to 20 pct drop

    By Joyce Lee and Ju-min Park
    SEOUL, May 3 (Reuters) - Shares in South Korea's Samsung
BioLogics Co Ltd  207940.KS  fell 3.5 percent on Thursday, a day
after losing almost $6 billion in market value as the contract
biotech drugmaker was hit by a regulatory probe into its
accounting rules.
    South Korea's financial regulator said earlier this week it
had given preliminary notice to BioLogics, an affiliate of tech
giant Samsung Electronics  005930.KS , and its auditors of
measures it could take concerning breach of accounting rules.
    While the regulator did not elaborate, some lawmakers and an
activist group have previously said BioLogics breached rules to
inflate net profit before its 2016 listing. The drugmaker has
denied it breached rules.
    According to its stock market filing in 2016, the valuation
in its books of loss-making drug developing unit Samsung Bioepis
jumped by 18 times to 4.8 trillion won ($4.5 billion) in 2015
after it switched to valuing the unlisted firm at fair market
value instead of at book value.
    BioLogics said on Wednesday it treated Bioepis as an
affiliate, not a unit, from 2015 and thus switched to fair
market valuation, because it could lose control of the unit due
to the possibility of the unit's minority investor Biogen Inc
 BIIB.O  exercising a call option to increase its stake to
nearly 50 percent.
    In making the switch of the valuation method, BioLogics said
it followed accounting rules and recommendations by accounting
experts, with the approval of country's three major accounting
firms.
    The change in the method helped BioLogics swing to a net
profit of 1.9 trillion won in 2015 from a loss of 28 billion won
a year earlier, bringing criticism that the process, ahead of
its $2 billion IPO in 2016, lacked transparency and may have
misled investors.
    "It's unclear how they came up with the 4.8 trillion won
valuation for a loss-making firm, and what kind of valuation
criteria they used to reach that conclusion," said Kim Eun-jung
at People’s Solidarity for Participatory Democracy, the activist
group that reported the case to the regulator last year. 
    "If the value was inflated, Samsung BioLogics shareholders
are the victims here."
    Some blamed the regulators.
    "Regulators could have caught it earlier when it was being
listed. I am more upset at regulators than Samsung. We are the
ones damaged without any protection," said an asset manager at a
local firm who sold off personal holding of BioLogics shares on
Wednesday. 
    Shares in BioLogics, the world's No.3 biotech contract
manufacturer after Lonza Group  LONN.S  and Boehringer
Ingelheim, have nearly trebled since its listing. The news of
the notice on accounting irregularities sent shares in the $24
billion company down nearly 20 percent, its biggest daily drop,
on Wednesday. The stock closed at its lowest level since January
on Thursday.
    Regulators are expected to begin deliberating on the case
within a month before making a final decision. If they rule that
BioLogics violated accounting rules, South Korea's stock
exchange could then debate whether to delist the firm, an
exchange official said. 
    Biogen, which owns approximately 5 percent of Bioepis, has
yet to exercise the option, and its CFO said last week on an
earnings call that it plans to do that and increase its equity
stake.     
($1 = 1,074.2700 won)

 (Reporting by Joyce Lee and Ju-min Park; Additional reporting
by Bill Berkrot; Writing by Miyoung Kim; Editing by Muralikumar
Anantharaman)
 ((jungyoon.lee@thomsonreuters.com; +82 2 3704 5609; Reuters
Messaging: jungyoon.lee.thomsonreuters.com@reuters.net))