[CB Crisis] Gwangmu Issues Warning on Convertible Stock Bomb Equal to Half of Total Shares

[Asia Economy Reporter Jang Hyowon] The conversion period for the convertible bonds (CB) worth approximately 40 billion KRW issued by KOSDAQ-listed company Gwangmu last year has arrived. If all these CBs are converted, a large volume equivalent to about half of the total issued shares could be released, requiring caution.

According to the Financial Supervisory Service's electronic disclosure on the 30th, the 36th and 37th series CBs issued by Gwangmu last year entered their conversion request periods on the 26th and today, respectively. The face values are 35 billion KRW and 5 billion KRW, respectively.

The conversion price for both CBs is 2,570 KRW. Since Gwangmu's current stock price is in the 3,300 KRW range, if this price is maintained upon conversion, a profit of about 30% can be realized.

The 36th series CB has already started conversion requests. On the 28th, conversion requests worth 1.3 billion KRW were made, and the day before, requests worth 4.4 billion KRW were submitted. Accordingly, a total of 2,217,888 new shares will be listed on the 12th, accounting for 6.67% of the total issued shares.

These CBs have such a large number of shares convertible that if converted all at once, a stock dilution issue is expected to arise. If all 35 billion KRW worth of the 36th series CB is converted, 13,618,677 shares will be newly issued, and if all 5 billion KRW worth of the 37th series CB is converted, 1,945,525 shares will be newly issued. This corresponds to about 47% of Gwangmu's total issued shares.

Moreover, about two months later, on January 20, 2023, the conversion period for the 38th series CB worth 10 billion KRW will begin. If the 38th series CB is converted at the current conversion price of 2,589 KRW, an additional 3,862,495 shares will be issued. This volume corresponds to about 12% of the total shares.

If all these CBs are owned, the holder could become Gwangmu's largest shareholder. Currently, Gwangmu's largest shareholder is Atlas Palcheon, a personal company of CEO Oh Jeonggang of Enchem, holding a 14% stake. Additionally, related parties hold 11.03% through Apulence Investment Association and 1.3% through Cedeo Investment Association, securing a total of 26.33%. In terms of shares, this amounts to 8,649,521 shares.

The 36th series CB was initially issued to Lee & Lee Partners, Leaders New Technology Investment Association No.1 and No.2. However, shortly after issuance, they were resold to Arena Global SK SPV (LLC), Capital Advisors, and Geyser Ventures.

The 37th series CB was issued to Cedeo Investment Association, a related party of CEO Oh Jeonggang, and then transferred to a corporation called Crossboard.

These CBs have been sold through multiple owners. In the meantime, in December last year, CEO Oh Jeonggang acquired a CB call option worth 5.6 billion KRW. With this CB conversion, CEO Oh can also realize profits or expand his stake.