[CB Crisis] Zetema Cancels CB Redemption After MFDS Product Approval Revocation... 56.8 Billion KRW Remaining

'Jethemadertoxinju100U' Incident Leads to Relentless Stock Price Drop
Partial Buyback and Cancellation of CB Issued at Investors' Request
Liquidity Crisis Feared if Remaining CBs Are Requested for Redemption
Company States "No Further Redemption Negotiations"

[Asia Economy Reporter Jang Hyowon] Filler and Botox manufacturer Jetema has recently decided to cancel convertible bonds (CB) worth 13.2 billion KRW that were repaid. Since the stock price fell significantly below the conversion price, investors demanded repayment, and attention is focused on whether additional repayment requests will come as about 56.8 billion KRW of outstanding bonds remain.

According to the Financial Supervisory Service's electronic disclosure on the 15th, Jetema announced that it decided to cancel 13.2 billion KRW worth of the 8th series CB the day before. Earlier, on the 7th, Jetema repurchased the bonds at face value through negotiations with bondholders even though the put option (early redemption right) period had not yet arrived. The repurchased CBs were then decided to be canceled.

This CB was issued last July with a scale of 70 billion KRW. The CB subscribers include Brain Asset Management, C Square Asset Management, Kiwoom Securities, Ebest Investment & Securities, and Mirae Asset Securities. Both the nominal and maturity interest rates are 0%, indicating that institutional investors invested in the CB to convert them into shares and gain profits rather than earn interest income.

However, as the stock price continued to decline, expectations were dashed. The initial conversion price of the CB was 37,966 KRW. According to investors’ plans, the stock price needed to rise above the conversion price by the conversion date on July 7. However, Jetema’s stock price has been on a downward trend since reaching its peak at the time of the CB issuance. The conversion price was adjusted (refixed) down to the limit of 26,577 KRW, but the stock price fell even further. As of the previous day’s closing price, Jetema’s stock price was 14,550 KRW.

As the stock price fell far below the conversion price and CB valuation losses continued, bondholders are interpreted to have requested repayment even before the put option exercise date. Originally, the put option for this CB could be exercised from July 7, 2023, two years after issuance.

Additionally, it is analyzed that Jetema’s recent cancellation of product approval by the Ministry of Food and Drug Safety (MFDS) also fueled the CB repayment. On the 2nd, the MFDS announced that Jetema violated the Pharmaceutical Affairs Act by selling the export-only drug ‘Jetema The Toxin 100U’ domestically without national shipment approval, and thus canceled the product approval. Consequently, Jetema also received an administrative disposition of a six-month suspension of all manufacturing operations.

Jetema immediately filed an objection and requested a provisional suspension of the administrative disposition, and announced that the company’s main sales were unaffected regardless of the disposition, but it appears this was insufficient to calm investors’ concerns.

The problem is that about 56.8 billion KRW worth of CBs remain unpaid. The amount repaid and canceled this time accounts for about 18% of the total 8th series CB. If all of this amount is requested for repayment, Jetema’s liquidity risk could emerge. As of the end of the third quarter this year, Jetema’s cash equivalents stood at 35.8 billion KRW.

A Jetema official said, “We repaid about 18% of the total CB at investors’ request, but we decided not to negotiate further repayments until the put option exercise date. Although recent negative issues have arisen, they do not affect sales, and we are conducting domestic Phase 3 clinical trials related to the toxin, so we expect the stock price to rise above the conversion price by July next year.”