[After CB Issuance] ATEEZ One, CBs Gradually Converted into Stocks... Volume Poses Burden

[Asia Economy Reporter Hyunseok Yoo] Convertible bonds (CB) issued by EightOne are being converted into shares one after another. Although there were concerns about redemption last year as the stock price exceeded the issue price, the sharp rise in the stock price in the second half of the year became a positive factor. However, there are also concerns about overhang (potential pending sell volume) due to the large volume that can be converted into shares immediately.

According to the Financial Supervisory Service on the 8th, EightOne will list 209,017 new shares on the 19th following a CB conversion request worth a total of 7 billion KRW. The 4th tranche CB is being converted, with a conversion price of 3,349 KRW. This accounts for about 1.3% of the total issued shares. If the stock price maintains the previous day's level (5,250 KRW) until the new shares are listed, investors can earn a profit of about 57%.

The 4th tranche CB, issued on January 30, 2019, with a total amount of 15 billion KRW, had a nominal interest rate of 0.0% and a maturity interest rate of 1.0%. The conversion request period is from January 30 last year to December 30, 2023. The conversion price at issuance was 4,504 KRW. Until last year, concerns about redemption were greater than conversion into shares. The stock price, which rose to 7,620 KRW in May last year, plunged to 2,875 KRW in August, as the conversion price limit was 3,153 KRW. However, as the stock price rebounded in the second half of the year, CB investors are now converting to shares.

While CB investors can make a profit, existing shareholders bear the burden of the increased volume. The remaining CBs are the 3rd tranche (627,500 shares), 4th tranche (2,388,772 shares), and 5th tranche (1,387,487 shares). Among these, the CBs that can be converted immediately are the 3rd and 4th tranches, accounting for 18.72% of the total volume. Including the 5th tranche, it reaches 27.36%. However, since the conversion request period for the 5th tranche starts on October 28, it is expected that there will be no significant timing issues.

Saltworks is a specialized company in defense and medical IT solutions. It entered the KOSDAQ market in December 2016 through a merger with IBKS No.4 SPAC. After listing, it acquired stakes in several companies through fundraising. In 2017, it acquired shares in Korea Media Tech, a developer of virtual training simulators, and in December of the same year, it acquired shares in K.A.T, a manufacturer of semiconductor inspection equipment and defense parts. Additionally, in 2019, it acquired shares in Anoto Group AB, a Swedish supplier of Digital Pen and Digital Paper products, and Knowledge AI Inc., an AI education solution specialist.

However, its performance has been sluggish since listing. On a consolidated basis, sales were 11.1 billion KRW in 2017, 7.7 billion KRW in 2018, and 13.1 billion KRW in 2019. Operating losses continued for three consecutive years. However, as of the third quarter last year, sales were 4.8 billion KRW with an operating loss of 400 million KRW. Sales increased by 29.68%, and operating losses improved significantly.