[After CB Issuance] Igjax Releases 10% Shares via CB... Issues Another 20 Billion KRW CB

10% of Total Shares Converted from CB
200 Billion KRW CB Issued Again Within Refixing Par Value Limit
Possibility of Additional 40 Million Shares Release in Future

[Asia Economy Reporter Jang Hyowon] Electronic component company Igjax is flooding the market with shares amounting to 10% of the total outstanding shares through the conversion of convertible bonds (CB).

Additionally, it recently issued an extra 20 billion KRW worth of CBs, setting the minimum conversion price adjustment limit to the par value of 500 KRW, raising concerns that a large-scale share supply bomb may continue.

10% of Total Shares Flood the Market

According to the Financial Supervisory Service’s electronic disclosure on the 15th, the entire 10.9 billion KRW worth of the 19th series CB of Igjax was converted on the 13th. The shares to be issued through conversion amount to 7,985,345 shares, accounting for 10.15% of the total issued shares. This means the current stock value will be diluted by about 10%.

The conversion price is 1,365 KRW. If the closing price remains around 2,350 KRW until the new shares are listed on the 29th, CB investors can expect approximately 70% profit.

The 19th series CB being converted this time was originally issued on February 28, 2019, with a scale of 20 billion KRW. At that time, Igjax issued CBs with a 0% coupon rate and 1% maturity interest rate for the purpose of repaying borrowings and raising operating funds.

Considering the 0% interest rate, it is analyzed that the bonds were issued primarily for conversion purposes. However, on the conversion eligibility date of February 28 last year, a partial redemption request was made for 14.5 billion KRW, and Igjax repaid 14.6 billion KRW including interest.

At that time, there were questions in the market as to why CB investors requested redemption even though Igjax’s stock price was hovering around 1,800 KRW, which would have allowed them to gain greater profits through conversion. The CB investors at that time were 'Nikkei 1st Association' and Trend Investment. Nikkei 1st Association included investors such as Microtech and Beno Holdings.

The largest shareholder of Beno Holdings is J&J Investment, which is the same as Igjax’s largest shareholder. The CEO of Beno Holdings is also Jung Jibhoon, the CEO of Igjax.

Igjax did not cancel the 14.5 billion KRW worth of CBs recovered in this way but reissued them. It is presumed that the investors who received these CBs realized profits through stock conversion.

In just last year, conversion requests were made four times for 5,566,760 shares of this CB. Including the shares being converted this time, a total of 13,552,105 shares have been released into the market due to the 19th series CB. This accounts for about 15% of the total outstanding shares.

Another 20 Billion KRW Par Value CB Issued... Concerns Over Share Supply Bomb Increase

Despite the large-scale release of shares through the 19th series CB, Igjax plans to issue more CBs. On the 8th, Igjax announced the issuance of the 20th series CB worth 20 billion KRW. This time, the coupon rate is 3% and the maturity interest rate is 5%, which is higher. The issuance targets are Yap Global and Cubrix, who have become Igjax’s largest shareholders.

The conversion price of the 20th series CB is 2,175 KRW, but the conversion price adjustment limit (refixing) is set down to the par value of 500 KRW. Generally, CBs set the refixing limit at about 70% of the initial conversion price to protect against stock price decline risks.

However, this CB is advantageous for investors because even if Igjax’s stock price falls to 500 KRW, CB investors will not incur losses. On the other hand, if the conversion price drops to the par value, the number of shares issued can increase up to 40 million shares. If more than half of the total shares flood the market, existing shareholders may face stock price dilution.

Meanwhile, although Igjax’s CB investors have made profits so far, the company’s performance has gradually weakened. On a consolidated basis last year, Igjax’s sales were 29.9 billion KRW, down 19% from the previous year. Operating profit also fell 84% to 400 million KRW during the same period.

The declining trend continued in the first quarter as well. Sales decreased by 10.8%, and operating profit turned to a loss. Net profit was about 300 million KRW, but this was due to an evaluation gain of about 1.3 billion KRW from shares invested in Chris F&C, an affiliate of Igjax. Excluding this, net profit was also in the red.