[CB Crisis] Hanil Jinkong to Early Redeem CBs with Conversion Price Lower than Stock Price

Overhang Issue Reaching 16% of Outstanding Shares Resolved
CB Early Redemption Burden Expected to Continue
Debt Response Capability in Focus Amid Four Consecutive Years of Losses

[Asia Economy Reporter Jang Hyowon] Hanil Vacuum, a KOSDAQ-listed company, has resolved the overhang (potential supply) risk by early redeeming convertible bonds (CB) with a conversion price lower than the stock price. It is expected that redemption demands will continue for CBs that are difficult to convert into stocks, drawing attention to Hanil Vacuum's response.

According to the Financial Supervisory Service's electronic disclosure on the 9th, Hanil Vacuum acquired the 11th series CB worth 6.5 billion KRW before maturity on the 4th. The CB was repurchased at 656.5 million KRW, including 1% early redemption interest on the face value. Hanil Vacuum plans to cancel the acquired CB.

The 11th series CB was issued last November with a volume of 8 billion KRW. The purpose of issuance was to raise operating funds. The recipients were Hands Partners, BFA, Core Trend Investment, and individuals. Among them, CBs worth 6.5 billion KRW were redeemed early.

As a result, Hanil Vacuum's overhang risk has significantly decreased. The conversion price of the 11th series CB was 470 KRW, and if the 6.5 billion KRW worth of CB had been converted, approximately 13,829,787 shares could have been released into the market. This corresponds to 16% of Hanil Vacuum's total outstanding shares.

After this early redemption, the remaining CBs held by Hanil Vacuum decreased to 7.5 billion KRW. About 1.5 billion KRW of the 11th series CB remains, along with 5 billion KRW of the 10th series and 1 billion KRW of the 9th series. However, the conversion prices of the 10th and 9th series are 990 KRW and 597 KRW respectively, making immediate conversion unlikely. If investors continue to demand early redemption, Hanil Vacuum will need to secure cash for repayment.

Hanil Vacuum's main business includes the development, production, and sales of vacuum deposition equipment. Its core products are vacuum deposition equipment for coating mobile phone cases and windows, optical lenses and mobile phone camera lens coatings, and eyeglass coatings. Its subsidiary Hanil Renewable operates in the organic waste recycling business.

In the first half of this year, Hanil Vacuum recorded sales of 4.6 billion KRW and an operating loss of 3 billion KRW. The operating loss decreased by 21.5% compared to the same period last year. However, the net loss expanded due to losses from its affiliate Telcon RF Pharmaceutical being reflected under the equity method. Hanil Vacuum holds a 27.5% stake in Telcon RF Pharmaceutical.

Telcon RF Pharmaceutical is engaged in manufacturing connectors and cable assemblies used in wireless communication equipment. Additionally, in its pharmaceutical bio business sector, it owns a liquid KGMP production facility producing liquid formulations and various products such as tablets, pills, and capsules.

In the first half of this year, Telcon RF Pharmaceutical recorded sales of 11.5 billion KRW and an operating loss of 1.5 billion KRW. Although operating losses decreased by about 24% year-on-year, net losses increased due to equity method losses from affiliates and investment losses.

Meanwhile, Hanil Vacuum has recorded losses on a separate basis from 2019 through last year, and if it posts a loss this year, it will mark four consecutive years of losses. However, attention is focused as the Korea Exchange announced on October 4th the abolition of management designation due to four consecutive years of operating losses.