Shin Joo-in Exercises 2,667 KRW BW Consecutively
9.12 Million Shares Awaiting Additional Exercise
Financial Structure Improved Through Capital Increase... Overseas Expansion Based on High Technology
[Asia Economy Reporter Hyungsoo Park] An investor who invested in the convertible bonds with warrants (BW) issued by NeuroS a year ago has realized profits by exercising the warrants. With the recent rise in NeuroS's stock price due to expectations of benefits from the expansion of hydrogen vehicle adoption, the return on investment for warrant holders is expected to be around 100%.
According to the Financial Supervisory Service's electronic disclosure system on the 27th, since the 14th, investors holding the 11th series of NeuroS convertible bonds with warrants (BW) have exercised warrants amounting to 1.81 million shares. Excluding the recently exercised amount, the number of shares available for exercise stands at 9,119,293 shares.
The exercise price per share is 2,667 KRW, which is about 44% of NeuroS's closing price of 6,030 KRW the previous day. For investors who initially invested at the time of BW issuance, this translates to a return exceeding 100% in just over a year. If the warrants were acquired on the market, the acquisition cost of the warrants in addition to the exercise price may reduce the overall return.
Previously, NeuroS issued the 11th series of BW worth 40 billion KRW in December 2019. The nominal interest rate was set at 2.0%, and the warrant subscription price was fixed at 3,803 KRW. If all warrants are exercised, 10.52 million new shares will be issued, accounting for a 31.7% stake. If the stock price falls, the exercise price can be adjusted down to 70%.
The 11th series BW issued by NeuroS is a detachable convertible bond with warrants, where the 'warrant securities' and 'bonds with separated warrants' are each listed and traded separately. The warrant securities were listed on December 23, 2019.
Founded in 2000, NeuroS is a manufacturer of turbo blowers based on aircraft turbo engine technology. Turbo blowers are devices that supply compressed air to water treatment facilities and industrial processes.
NeuroS produces turbo blower products used in various fields, but about 70% of its total sales come from turbo blowers for water treatment facilities. To diversify its business structure, which is concentrated on turbo blowers, the company is expanding into air compressors for hydrogen vehicles, blowers for hydrogen fuel cells, and aircraft parts.
The process of pursuing business diversification required significant funding. Between 2016 and 2017, 24 billion KRW was invested in facility acquisition, including purchasing a building for its Shanghai subsidiary in China and establishing a factory for new product production. In 2018, while attempting to acquire Smart Savings Bank, the company lent 20 billion KRW to an affiliate as acquisition funds. The acquisition of Smart Savings Bank failed in 2019, resulting in partial non-recovery of the acquisition funds. Investment is also expected to continue for expanding production facilities for air compressors used in hydrogen vehicles.
As of the end of the third quarter last year, the debt ratio stood at 260.7%. Since 2017, large non-operating losses have occurred, resulting in net losses. In 2017, a net foreign exchange loss of 4.1 billion KRW was recorded, and in 2018, a loss of 7.7 billion KRW from the valuation of designated financial liabilities recognized in profit or loss occurred. In 2019, losses included 8.0 billion KRW from the fair value measurement of financial assets recognized in profit or loss, 2.3 billion KRW impairment of tangible and intangible assets, 3.7 billion KRW provision for litigation liabilities, 5.5 billion KRW bond issuance fees, and 4.5 billion KRW other bad debt expenses, resulting in a net loss of 25.7 billion KRW.
NeuroS is promoting a paid-in capital increase to improve its financial structure. It plans to raise 17.7 billion KRW by issuing new shares to HSD Korea and HSD Shanghai Hosung Desin Energy Technology Co., Ltd. Of this, 16.9 billion KRW will be used to repay debt. After the capital increase, the largest shareholder will change to HSD. HSD has agreed to delegate voting rights on its shares to Kim Seung-woo, the current CEO of NeuroS.
Having eased its urgent financial situation through the capital increase and stock price rise, NeuroS is seeking a turnaround based on air compressors for hydrogen fuel cell vehicles applying air bearing technology. To generate electricity needed to drive hydrogen vehicles, oxygen must be stably supplied to the fuel cell anode. Air compressors using air bearing technology can supply clean oxygen without lubricants, improving fuel cell durability. They can continuously supply compressed air through high-speed rotation. The technology is simple in structure and quiet, effectively maintaining vehicle quietness. NeuroS received new technology (NET) certification from the Ministry of Trade, Industry and Energy for its air compressors for hydrogen vehicles at the end of 2016. It supplied air compressors to Hyundai Motor's hydrogen vehicle, Nexo. Building on this advanced technology, NeuroS plans to expand overseas with its air compressors for hydrogen vehicles, targeting the Chinese market where interest in hydrogen vehicles is growing.
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