[After CB Issuance] NSN, Convertible Bond Redemption to Begin... Beware of Massive Supply Bombardment

Capture of NSN homepage.

[Asia Economy Reporter Jang Hyowon] Convertible bonds (CB) worth 1 billion KRW of NSN, a KOSDAQ-listed company, will be converted into stocks. Starting as early as tomorrow (the 8th), the converted shares can be sold, which is expected to result in a large volume of sell orders. Additionally, NSN still has about 29 billion KRW worth of outstanding CBs remaining, which is likely to pose a burden going forward.

According to the Financial Supervisory Service’s electronic disclosure on the 7th, NSN’s 21st series CB worth 1 billion KRW has been requested for conversion. The conversion price per share is 1,010 KRW, amounting to a total of 990,098 shares, which corresponds to 1.47% of the total issued shares.

This conversion was requested in two installments on the 23rd of last month and the 4th of this month. The listing date for the shares converted from the 500 million KRW CB requested on the 23rd of last month is the 11th of this month. Considering that short selling is allowed two trading days before the stock deposit date, 495,049 shares could be released into the market as soon as tomorrow (the 8th).

The 21st series CB was issued on September 28, 2020, with a total value of 5.01 billion KRW. It carried a nominal interest rate of 4% and a maturity interest rate of 5%, and the recipients included Everun Solution, Kim Junghoon, and Kim Jihwan. NSN issued the CB to use the proceeds for purchase payments and company operating expenses.

The initial conversion price of this CB was 1,210 KRW. However, as NSN’s stock price declined, the conversion price was re-fixed (adjusted) down to 1,010 KRW. This CB includes a clause that adjusts the conversion price down to about 70% of the initial issue price if the market price falls.

Despite the downward adjustment of the conversion price, CB investors did not request conversion even when the conversion period arrived on September 28 last year due to sluggish stock prices. Eventually, on December 28 last year, NSN repurchased 4.01 billion KRW worth of CBs from the investors.

NSN announced last month on the 23rd that it would sell these to a group called ‘Squire No.1 Association.’ The contract was made to sell at the face value of 4.01 billion KRW plus a 1% premium. On the closing price of the 23rd, NSN’s stock price was 1,475 KRW. This means the CB with a conversion price of 1,010 KRW was sold at about 30% cheaper than the stock price.

The party requesting conversion of the 1 billion KRW 21st series CB this time could gain about 46% profit if NSN’s stock price remains around 1,470 KRW by the 8th.

Coincidentally, the first CB conversion request on the 23rd of last month was the same day that KOSDAQ-listed company G-W Biotech announced it would invest 12.1 billion KRW in NSN’s largest shareholder, ‘JK Partners No.1 Investment Association,’ to participate in NSN’s management. This caused NSN’s stock price to surge.

Starting with this CB conversion request, a large volume of CB conversion is expected to flood the market. As of the end of the third quarter last year, NSN’s outstanding CBs amounted to 29.8 billion KRW. The 18th to 22nd series have already entered the conversion request period, and the 23rd to 25th series will become convertible on April 9 and May 11, respectively.

Attempts to contact the company for inquiries were unsuccessful.

Meanwhile, NSN operates in the bicycle business, distribution of computers and peripherals, and biomedical business focused on the development and sales of brain disease treatment devices. It recorded operating losses for six consecutive years on a consolidated basis until 2020 and posted a cumulative deficit of 8 billion KRW up to the third quarter of last year.