[Funding] Crescendo PE Bets on Seojin System CB... Borrowing 40 Billion KRW for Acquisition Funds

[Asia Economy Reporter Lim Jeongsu] Crescendo Private Equity (PE), a management participation-type private equity fund, raised approximately 40 billion KRW through Sunflower Holdings (hereinafter Sunflower), a limited liability company established for investment purposes. The funds were raised to acquire convertible bonds (CB) issued by the KOSDAQ company Seojin System. With this CB acquisition, Crescendo PE increased its stake in Seojin System to over 20%.

According to the investment banking (IB) industry on the 13th, Sunflower recently borrowed 40 billion KRW from a special purpose company (SPC) established under the sponsorship of Hanyang Securities. The loan has a maturity of three years with a lump-sum principal repayment at maturity. However, if the Seojin System CB or the shares held by converting the CB are sold in the market, the loan must be repaid early with the proceeds. Sunflower Holdings effectively provided the Seojin System CB as collateral for the loan.

Sunflower Holdings is a limited liability company established by Crescendo PE to act as the GP (general partner) of the Seojin System investment fund. Vice President Park Jinsu of Crescendo PE serves as a director of Sunflower. As Sunflower holds more than 10% of Seojin System’s shares, Vice President Park also concurrently serves as a non-executive director of Seojin System.

Sunflower used the raised funds to acquire Seojin System CB. At the end of last month, Seojin System issued CBs totaling 110 billion KRW in two tranches. Sunflower acquired 90 billion KRW worth of these, while the former chairman purchased the remaining 20 billion KRW with personal funds. It is understood that Sunflower initially acquired the Seojin System CB with its own funds and then used the held CB as collateral to raise loans again.

Through this CB acquisition, Sunflower secured an additional 7.30% stake in Seojin System. Crescendo PE had also acquired CBs issued by Seojin System in March last year. Including the shares convertible from the CB, Sunflower’s stake increased from 13.22% to 20.52%. It continues to hold the position of the second-largest shareholder following the former chairman.

Seojin System has continuously issued CBs while expanding its business in Vietnam and increasing investments such as mergers and acquisitions (M&A). The company disclosed that the funds from this CB issuance will be used for expanding the Vietnam factory facilities and purchasing raw materials for the local factory.

The CBs issued by Seojin System have a conversion price higher than the stock price at the time of issuance and do not include a refixing clause for conversion price adjustment due to simple stock price declines, meaning profits can only be realized if the stock price rises. The CB interest rate is around 2.5%. An IB industry official evaluated, "Crescendo PE’s increase in CB investments under conditions where profits are difficult to realize unless the stock price rises indicates a high confidence in the success of Seojin System’s Vietnam business."

Meanwhile, Seojin System’s stock price has recently been on an upward trend, already surpassing the CB conversion price of 47,000 KRW issued in March.