[CB Crisis] ④ Between Conversion and Redemption Amid Ongoing Refixing

[Asia Economy Reporter Hyungsoo Park] AT Semicon issued the 11th series of convertible bonds (CB) in January last year, allowing the conversion price to be adjusted down to the par value. As the conversion price has been continuously lowered, concerns about shareholder value dilution are emerging.

On the 11th of last month, AT Semicon acquired part of the 11th series CB before maturity. Including interest, it was acquired for 1,015.67 million KRW and then resold. On the 20th, the conversion rights for 1 billion KRW worth of the same series CB were exercised. 884,955 common shares will be listed on the 5th.

In January last year, the 11th series CB was issued to raise 5 billion KRW for facility funds. The conversion price was set at 910 KRW, with a condition allowing adjustment down to the par value of 500 KRW. Since issuance, the conversion price has been lowered to 500 KRW, and the number of convertible shares increased from 5.51 million to 10.02 million shares.

The articles of incorporation provide grounds to adjust the conversion price down to the par value within a limit of 100 billion KRW. A clause was included stating that if issued to achieve management purposes such as debt repayment for restructuring and business normalization, financial structure improvement, facility investment, asset acquisition, or mergers and acquisitions, the minimum conversion price adjustment can be down to the par value.

For CBs issued before the capital reduction, the adjustment range can be larger. In March last year, the board of directors resolved a 90% capital reduction to cover deficits and improve the financial structure. On the 31st of the same month, the regular shareholders' meeting approved the capital reduction agenda. Following the announcement of the capital reduction, the stock price fell. According to the refixing condition of the 11th series CB, the conversion price was lowered to the par value.

Upon completion of the capital reduction on April 23 last year, the number of issued shares decreased from 142.62 million to 14.26 million shares. Due to the capital reduction, the 11th series CB conversion price changed from 500 KRW to 3,980 KRW. On the first day of resumed trading, the stock price closed at 3,300 KRW. Subsequently, the stock price hovered around 3,000 KRW, and the 11th series CB conversion price was lowered to 3,123 KRW. Further refixing followed due to rights offerings and market price declines, lowering the conversion price to 1,130 KRW.

Among the CBs issued in the past, the balance that has not been converted into shares or redeemed amounts to approximately 26.5 billion KRW. The number of shares that can be issued is 23.8 million, which corresponds to 48% of the 49.91 million issued shares. Although the current conversion price ranges from 1,014 to 1,130 KRW, the number of shares that can be issued may increase depending on stock price declines. To reduce overhang (potential sell-off volume), debt must be repaid before maturity.

As of the end of the first quarter, the debt ratio was 148.2%, down from the end of last year. Cash and cash equivalents held amount to 4.5 billion KRW. Among other financial assets totaling 34.8 billion KRW, 21.5 billion KRW worth of other corporation's bonds with warrants (BW) and CBs are held. In the first quarter of this year, sales amounted to 34.9 billion KRW, with an operating loss of 11.9 billion KRW.