Han Siul Biotech (3): The Devil Hides in the Footnotes

Han Siul Biotech's net income—that's total revenue minus all expenses, the pure profit left over—was around 32 billion won.

At first glance, it looks pretty solid. The news has been blaring ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠nonstop about their complete turnaround to profitability.

"...But these fuckers with their half-baked tech are making bank on what, exactly?"

Nothing special about the title.

The ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠content wasn't anything mind-blowing either.

I skimmed Note 18, chasing the scattered footnotes all the way to the back pages of the report.

I scrolled past the irrelevant footnotes, and a small table popped up.

"These bastards are really twisting shit, huh."

Like I mentioned, Han Siul Biotech's net income was about 32 billion won.

Out of that, 28.3 billion was the kind of money that could vanish—like the example I gave earlier.

Basically, the company's actual operating performance was zilch.

It might look a bit off at first, but up to this point, it was understandable enough.

They didn't have a ton of proven tech yet, and for a biotech firm, temporary valuation gains from derivatives weren't unheard of.

And hey, that money wasn't fake—it existed, right?

"But why the fuck hide it so deep?"

Chasing more footnotes scattered around, I flipped further.

And out popped another table. A table leading to another table—like some goddamn Matryoshka doll.

"Huh?"

Of the 28.3 billion, a whopping 24.3 billion came from embedded derivatives in convertible bonds.

This was blatantly suspicious.

Convertible bonds—CBs for short.

If I compare it to a restaurant, it's like customers flocking to a barbecue joint because the meat's grilled so damn well.

"Oooooh! So coooold!"

But hold up?

The owner's grilling is so tasty that everyone's convinced this place is gonna blow up.

Then you hear the owner might have to shut down because he's broke.

So the customers lend him money, but instead of straight interest, they add a condition: lower interest, but they can convert the loan into equity later.

If the joint flops? They just pocket the interest and call it a day.

If it succeeds? They snag equity on the cheap—huge win.

"Kaaah, CBs make perfect sense now, swoosh."

What, my analogy sucks dick?

...Tough shit.

Genius types are smart themselves but usually suck at explaining to others.

Anyway, from the barbecue joint's perspective: the more successful it gets, the more valuable the equity they owe.

Normally, that'd show up as a liability on the books.

And yeah, everyone sees it coming—the barbecue joint here is Han Siul Biotech.

Success means stock price up.

So doesn't that feel off?

"They profited 24.3 billion from this?"

Looked like I'd found the clear thread.

Sure, refixing clauses mean stock rises don't always amp up liabilities... but if so, no need to bury it this deep.

Chasing another footnote to the report's end, the veil finally lifted on Han Siul Biotech's secret.

"...These fucking insane bastards."

Special Purpose Company, not in consolidated scope, voting rights agreement.

No need to read the rest.

Simple words, simple meaning: not consolidated means the SPC's debts and losses don't hit the parent company's statements directly.

Want it simpler?

Profits go to the parent as gains; losses get dumped on the SPC.

Factor in the SPC's debts, and Han Siul Biotech's net income...

A loss of 42 billion? How the hell are their projects still running?

This was straight-up accounting fuckery. I frantically scrolled up.

"No way cash is short—that's plenty."

Enough liquid cash to weather most crises.

So why rush to issue stocks and CBs like mad?

Zipping between notes and body text, an even weirder line jumped out.

Restricted use.

Most of their cash was tied up somewhere.

Where the hell?

12-1, 12-2, 12-3...

"...Ah."

Skimming the endless footnotes, my tension suddenly snapped.

"...These guys are truly fucking nuts."

Fancy words, simple point: Han Siul Biotech borrowed a shit-ton from banks under Hanbit Investment's name, and 9.6 billion is the collateral.

But the contracts were tied to Han Siul's stock price—money flows based on that.

Stock drops? That 9.6 billion evaporates.

But the real kicker was elsewhere.

That 11.2 billion? Effectively unusable.

But money always finds holes to leak into.

So Han Siul issues more stock or CBs, hands them to Hanbit Investment.

Hanbit pledges those as collateral to borrow more.

And they rigged contracts heavily in Han Siul's favor.

Now I got why those rumor-level positive news hits topped the charts.

"Fuck, stock rises boost Han Siul's valuation gains!"

Meanwhile, Hanbit's deficits balloon.

But who cares?

Higher gains mean print more stock, borrow bigger.

Operating losses just keep growing. Duh—no sales, no results, how else?

Han Siul's mindset was obvious.

"Pay it back from profits? But the structure makes that impossible?"

Borrow more and more, push trials to Phase 3 success, then settle up—that's the delusion.

One stock plunge, 9.6 billion gone—fine.

But of 16.4 billion cash, 11.2 billion locked from trials, deficits mounting.

Phase 1? Maybe. Phase 2? No shot.

100% failure odds—one flop, and everything cascades into liquidation. Stock to trash.

"...Gonna send a few folks to check Han River temps."

So what do I do?

[...So Grandpa, investing here now looks like it'll be a massive hit. For real!]

Whatever.

I'm just one retail schmuck—can't stop this alone. Might as well make some cash.