Lotte Tour Development "No Impact from Short Selling Resumption"... Only 2% Loan Balance

75% of Loan Balance Consists of Shares Already Traded During Overseas CB Issuance
Normal Loan Balance Level Is Only 2% of Issued Shares

[Asia Economy Reporter Song Hwajeong] Lotte Tour Development announced on the 29th that the general loan balance volume (1.59 million shares) is only about 2% of the total issued shares (69.27 million shares), so there will be no impact from the resumption of short selling next month, despite market concerns about the high loan balance.

As of the previous day, Lotte Tour Development's loan balance reached 5.89 million shares (8.5% of total issued shares), but 4.3 million of these shares were already loaned during the issuance of overseas convertible bonds (CB) in 2019, so they will have no impact on the market going forward, the company explained.

In September 2019, Lotte Tour Development received an investment of $60 million (approximately 71 billion KRW at the time) from Lindon Advisors, the world's No. 1 CB specialized investment company, and LMR Partners. The convertible bonds mature in 4 years (September 20, 2023) with a conversion price of 13,500 KRW. At that time, the overseas CB acquiring institutions received 4.6 million shares of Lotte Tour Development held by Donghwa Investment Development through loan transactions and immediately sold 4.3 million of those shares in the market, employing a so-called ‘Delta Placement’ trading method.

Lotte Tour Development explained, “The delta trading method is often implemented overseas as a hedge for market-neutral strategies because the price of convertible bonds can fluctuate depending on stock price movements,” adding, “It was also applied in the overseas convertible bond issuance of LG Display in the past.”

The company stated that the overseas CB issuance through loan transactions at that time secured investment funds and significantly improved the circulating shares of Lotte Tour Development, resulting in a dual effect of reducing stock volatility. Previously, the largest shareholders and major shareholders such as the National Pension Service held very high stakes, so the average daily circulating shares of Lotte Tour Development were only about 100,000 shares, but after the loan transactions, the circulating volume increased to an average of 800,000 shares daily this year, about eight times more.

Additionally, Lotte Tour Development projected that even if the overseas CB is converted into shares in the future, 4.3 million shares already sold to the market through loan transactions must be repaid to Donghwa Investment Development, so the volume affecting the stock market is only about 1.3% of issued shares (1 million shares), and thus it is expected to have little impact on future stock price volatility.