[After CB Issuance] Sehwa IMC Approaching Convertible Date for 6 Million Shares... Will Supply Flood the Market?

[Asia Economy Reporter Jang Hyowon] Sehwa IMC's convertible bonds (CB) issued previously are approaching the date when conversion requests can be made. The market expects that the conversion price is high, making it difficult to convert into shares.

According to the Financial Supervisory Service's electronic disclosure on the 19th, Sehwa IMC holds outstanding CBs worth a total of 4.06 billion KRW. Among these, the 4th series CB worth 3.56 billion KRW matures by February 22.

The conversion request period for this CB is until the 22nd. CBs are bonds where the bondholder can choose either to convert into shares equivalent to the face value or to receive repayment at maturity. If the conversion request period passes, investors receive principal and interest at maturity. The interest rate for the 4th series CB is 6%.

The conversion price for this CB is 573 KRW per share. If converted into shares, a total of 6,038,394 shares will be released into the market, accounting for 7.4% of the total outstanding shares. This could dilute existing stock prices.

However, it is expected to be difficult for CB bondholders to choose conversion. As of the previous day, Sehwa IMC's closing price was 580 KRW, only 1.2% higher than the conversion price. Unless the stock price rises significantly, it is difficult to expect gains from price differences.

If CB investors request repayment, Sehwa IMC's burden could increase. As of the end of Q3 last year, Sehwa IMC recorded consolidated sales of 59.8 billion KRW, operating losses of 4.9 billion KRW, and net losses of 7.8 billion KRW.

Although sales decreased by 24% compared to the same period last year, operating losses narrowed somewhat due to a drop in raw material costs. Net losses expanded by 524%, reflecting losses on assets held for sale included in other non-operating expenses. During the same period, free cash flow (FCF), calculated by subtracting investment amounts from operating cash flow, was negative 16.9 billion KRW.

The debt ratio is also high. As of the end of Q3 last year, the debt ratio was 188%. It is estimated that the debt ratio dropped to the 110% range after raising 39.4 billion KRW through a public offering in November last year, but it remains at a high level.

The funds raised at that time did not include money for CB repayment. Of the total 39.4 billion KRW, 26.3 billion KRW was used to repay short-term borrowings and other debts, and 13.1 billion KRW was for purchasing factory land.

Meanwhile, Sehwa IMC operates mainly in the tire mold and tire manufacturing equipment business sectors. Last year, it also newly entered the mask business.