[CB Crisis]⑨ F&Republic Releases More Shares Than Major Shareholder's Stake

[Asia Economy Reporter Jang Hyowon] As F&Republic’s 6 billion KRW convertible bonds (CB) are converted into shares, a volume exceeding the largest shareholder’s stake is expected to be released into the market.

According to the Financial Supervisory Service’s electronic disclosure on the 17th, F&Republic announced that the conversion rights for the 21st series CB worth a total of 6 billion KRW were exercised over two days on the 12th and 14th.

Accordingly, the number of shares to be converted is 2,587,320 shares, which accounts for 23.5% of the total issued shares as of the end of the first half. The CB investors are Sophia No.1 Association and Mr. Yang Seung-geun, each holding bonds with a face value of 3 billion KRW.

The 21st series CB was issued in July last year. At that time, it was issued for the purpose of operating funds of 3 billion KRW and acquiring securities of other companies worth 3 billion KRW. F&Republic invested about 2.7 billion KRW of the funds raised through this CB into a paid-in capital increase of its subsidiary, Jayjun Cosmetic.

The initial conversion price of this CB was 3,218 KRW, but after several adjustments, the conversion price dropped to 2,319 KRW per share. As of this date, F&Republic’s stock price is moving in the 4,800 KRW range. New shares will be listed on the 27th and November 1st, and if the stock price is maintained until then, investors can expect more than double returns.

Moreover, the conversion of the CB could change the largest shareholder. As of the end of the first half of this year, the largest shareholder of F&Republic is F&Cosmedics, holding a total of 1,078,516 shares (9.81%). Even when combining the management shares of CEO Oh Chang-geun (4.39%), Wang Teng (2.1%), and Fan Na (2.21%), the total is 18.51%.

Currently, Sophia No.1 Association and Mr. Yang have disclosed their stock holdings for simple investment purposes, but if all shares converted from the CB are block-traded to the same party, the acquirer could instantly become the largest shareholder.

Additionally, all shares held by F&Cosmedics are under provisional seizure, making the management rights even more precarious.

Earlier on the 4th, Jayjun Cosmetic filed a provisional seizure on F&Republic shares by claiming repayment of 2.8 billion KRW in accounts receivable from F&Cosmedics. F&Cosmedics is currently in a state of capital erosion with liabilities of 10.6 billion KRW and assets of 3.1 billion KRW as per the latest settlement. Its sales are also at the level of 52 million KRW.

Furthermore, the 10.3 billion KRW paid-in capital increase currently underway by F&Republic has been continuously delayed, increasing concerns about the governance structure.

In December last year, F&Republic announced a third-party allotment paid-in capital increase of 10.3 billion KRW targeting the Kaien No.1 Association. This transaction involves issuing 6 million new shares at 1,718 KRW per share. Upon completion, Kaien No.1 Association would acquire more than 60% of the total shares of F&Republic.

However, this capital increase has been postponed three times, with the payment date changed to November 14. Meanwhile, the issuance of 15 billion KRW worth of CBs, which was to be issued alongside the capital increase, was also canceled. Both the capital increase and CB issuance were deals conducted by Withbo Asset, but the CB issuance was canceled midway.

Meanwhile, F&Republic is a fashion and beauty brand distribution and marketing platform company. Its main sales are centered on the Chinese market. As of the end of the first half of this year, on a separate basis, it recorded sales of 8 billion KRW and an operating loss of 1.5 billion KRW.