May 2, 2018 / 12:29 AM / 21 days ago

Accounting concerns wipe $6 billion off Samsung BioLogics market value

SEOUL (Reuters) - South Korean biotech drug manufacturer Samsung BioLogics Co Ltd (207940.KS) lost almost $6 billion in market value on Wednesday in its biggest intra-day share drop, after the country’s financial watchdog said it breached accounting rules.

Shares in the $30 billion company, an affiliate of technology giant Samsung Electronics Co Ltd (005930.KS), plunged almost 20 percent amid suspicion it breached accounting rules to inflate its net profit before its 2016 listing.

The Financial Supervisory Service (FSS), South Korea’s financial regulator, said on Tuesday it had given preliminary notice to Samsung BioLogics and its auditors of measures it could take concerning the suspected breach.

The watchdog did not elaborate on its allegation, but political activists and lawmakers have long questioned the company’s swing into profit two years ago.

Samsung BioLogics said it would prove it followed rules backed by South Korea’s three major accounting firms, and would sue if the country’s top financial regulator, which makes the final decision, found otherwise.

“If a decision is made that we cannot accept, we plan to file an administrative lawsuit,” BioLogics’ Vice-President Byunghwa Shim told reporters.

The dispute is latest controversy to hit a Samsung affiliate after Samsung Securities’ (016360.KS) damaging fat finger mistake last month.

It also follows on the heels of U.S. hedge fund Elliott launching a legal case against the South Korean government over a 2015 merger between Samsung affiliates.

South Korea’s powerful family-run conglomerates, of which Samsung Group is the largest, are under mounting political and investor pressure to boost transparency since Samsung Group heir Jay Y. Lee was arrested last year on bribery and embezzlement charges. Lee, who has denied charges, was set free in February after a court suspended his sentence.

Samsung BioLogics' shares fell as much as 19.8 percent to their lowest since late January, before paring losses to trade down 17.2 percent. It was their biggest intra-day drop since listing in late 2016. The benchmark KOSPI .KS11 was down 0.4 percent.

    PROFIT SWING

    Activist group the People’s Solidarity for Participatory Democracy and lawmakers raised questions last year about Samsung BioLogics’ 1.9 trillion won ($1.77 billion) net profit in 2015. A year earlier it had posted a roughly 28 billion won net loss.

    The world’s third-largest biotech contract manufacturer after Lonza Group (LONN.S) and Boeringer Ingelheim in terms of manufacturing capacity said the profit was the result of following IFRS accounting standards.

    In late 2015 and early 2016, when BioLogics’ books for 2015 were being compiled, the perceived market value of its unit Samsung Bioepis skyrocketed on the back of approvals for its copies of blockbuster biotech drugs in Europe and South Korea.

    As Bioepis’s perceived value rose, minor shareholder Biogen said it could exercise its call option to increase its stake to 50 percent minus one share.

    Accounting experts told BioLogics that according to IFRS rules, the possibility of the call option being exercised meant Bioepis needed to be categorized as an affiliate, not a unit, which in turn meant the stake needed to be reflected in BioLogics’ books by fair value, not book value, BioLogics said on Wednesday.

    The change to fair value, and the subsequent net profit, was approved by KPMG Korea, Deloitte Korea and PricewaterhouseCoopers Korea, and the FSS did not raise an issue when it released the 2015 books in 2016, the company added.

    An FSS official declined to comment.

    Shares in Samsung C&T Corp (028260.KS), which held a 43 percent stake in Samsung BioLogics as of end-2017, also fell more than 5 percent. Shares of Samsung Elec, which owned a 31.5 percent stake in Samsung BioLogics as of end-2017, were on a trading halt on Wednesday ahead of a stock split.

    ($1 = 1,075.8000 won)

    Reporting by Joyce Lee; Editing by Murali Anantharaman and Stephen Coates

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