[Governance] S-1net Expands Major Shareholder Stake Through CB Call Option

[Asia Economy Reporter Jang Hyowon] The largest shareholder of ICT infrastructure specialist Snet is expanding its control through the exercise of a convertible bond (CB) call option.

According to the Financial Supervisory Service's electronic disclosure on the 24th, Snet announced that 4 billion KRW worth of the 1st series CB has been converted. The conversion price is 5,067 KRW, and a total of 789,421 new shares will be newly issued. The listing date of the new shares is December 9.

This conversion volume belongs to Blue Lotus, Snet's largest shareholder. In November 2020, Snet issued the 1st series CB with a face value and maturity interest rate of 0%, amounting to 20 billion KRW. The issuance targets were financial firms such as Shinhan Investment Corp., NH Investment & Securities, and C Square Asset Management.

Blue Lotus acquired the 1st series CB by exercising the call option (put right). This CB included a call option allowing the holder to exercise up to 40% of the total face value every three months from November last year, which was one year from the issuance date, until November this year, which is two years from issuance. As the final deadline for the call option approached, Snet designated Blue Lotus, the largest shareholder, among others, to exercise the call option.

It is estimated that Blue Lotus acquired the CB by paying a premium of about 2.01% over the face value. Although the conversion price of this CB is 5,067 KRW, considering the premium paid, Blue Lotus effectively acquired Snet's shares at 5,169 KRW per share.

Since the volume to be converted this time is owned by the largest shareholder, it is expected that the shares will unlikely be immediately released into the market. Also, with Snet's closing price at around 5,090 KRW the previous day, it is difficult to realize gains.

Therefore, it is interpreted that Snet exercised the CB call option to expand Blue Lotus's control. As of the end of the third quarter this year, Blue Lotus holds 12.96% of Snet's shares. With this CB conversion, the shareholding ratio is expected to rise to 17%.

Blue Lotus is a corporation where Heo Insook, the wife of Snet Chairman Park Hyodae, holds 45.3% of the shares and serves as the largest shareholder and CEO. Chairman Park also holds 42.9% of this company’s shares. Park and Heo respectively hold 5.78% and 7.13% of Snet's shares. After the CB conversion, their total shareholding is estimated to rise to about 30%.

Meanwhile, when Snet issued the 1st series CB, it used the 20 billion KRW raised to acquire shares in Inseong Information. As of the end of the third quarter this year, Snet is the largest shareholder of Inseong Information with 20.15%. Inseong Information is an IT infrastructure company expected to have synergy with Snet.

However, Inseong Information's performance has been sluggish this year. As of the end of the third quarter, it recorded an operating loss of 1.1 billion KRW. Currently, Snet classifies Inseong Information as an affiliate, so if Inseong Information records a net loss, it will be reflected as a loss for Snet under the equity method.