[At a Crossroads] Noble M&B①, '5 Years of Deficit' To Be Soft CB and Own CB Exchange

Given 10 Billion CB and Receiving 10 Billion CB from ToBeSoft
Can Redeem but Chooses Conversion Despite Potential Loss

Noble M&B homepage capture.

[Asia Economy Reporter Jang Hyowon] Noble M&B exchanged its convertible bonds (CB) for ToBeSoft CB. Although Noble M&B's CB had a higher market value on the exchange day, the exchange was made at face value. Moreover, despite Noble M&B being able to redeem ToBeSoft's CB, it immediately requested conversion, raising concerns.

According to the Financial Supervisory Service's electronic disclosure on the 28th, Noble M&B announced it would resell 10 billion KRW worth of its 24th series CB. In return, it received 10 billion KRW worth of ToBeSoft's 13th series CB. At face value, the transaction was an exchange of CBs under identical conditions with the counterparty.

The 24th series CB was initially issued in February last year with a scale of 20 billion KRW. The issuance target was the largest shareholder, Noble Bio. With a 0% interest rate, the primary goal was to gain profits through stock conversion. Noble Bio converted part of the invested CB into shares, but as the stock price continued to fall, it exercised a put option to redeem approximately 10 billion KRW.

Noble M&B held the redeemed CB without cancellation for some time. In this case, it becomes a 'ghost CB' that is not recorded in either the liability or equity accounts on the financial statements. However, with this resale of CB, the 10 billion KRW 24th series CB became a liability again. The conversion price of this CB is 2,549 KRW per share. On the day before the exchange, Noble M&B's closing price was 2,725 KRW. Assuming immediate conversion to stock and sale, about a 6% profit was expected. Currently, Noble M&B's stock price is moving around 2,900 KRW, even higher than that.

On the other hand, the conversion price of the ToBeSoft CB received by Noble M&B is 959 KRW. On the transaction day, ToBeSoft's closing price was 957 KRW. Converting ToBeSoft CB into stock and selling it would inevitably result in a loss. Nevertheless, Noble M&B received 10 billion KRW worth of ToBeSoft CB and handed over 10 billion KRW worth of Noble M&B CB to the counterparty.

Additionally, ToBeSoft's CB was initially issued at a scale of 30 billion KRW. Except for the portion purchased by Noble M&B this time, the rest has not yet been converted, putting pressure on the stock price. In fact, 11 billion KRW worth of the 13th series CB, excluding the portion held by Noble M&B, was converted the day before. As a result, more than 24% of ToBeSoft's total shares will be newly issued. Still, 19 billion KRW remains. If 19 billion KRW is converted, 19,812,304 shares, accounting for 42.4% of the total shares, will be additionally issued.

If conversion is disadvantageous, Noble M&B can redeem the CB. The nominal interest rate of ToBeSoft's 13th series CB is 3%, and the maturity interest rate is 5%. If redemption is requested by the 29th, 103.3% of the principal can be received. ToBeSoft used all the funds raised from the CB issuance to acquire financial bonds and provided them as collateral to Meritz Securities, the issuance target, making redemption possible. Nevertheless, Noble M&B requested conversion of 10 billion KRW worth of ToBeSoft CB on this day. It takes about 2 to 3 weeks until new shares are issued, and if ToBeSoft's stock price falls below 959 KRW during this period, the possibility of loss increases.

By exchanging CBs disadvantageously for itself, Noble M&B allowed the counterparty to gain profits from the rise in Noble M&B's stock price. The counterparties who purchased Noble M&B CB include investment associations such as Mano Association and individuals like Park. A Noble M&B official said, "We requested conversion of ToBeSoft CB after purchase on this day, but the timing of stock sale is undecided," adding, "We do not know why management chose conversion over redemption."

Meanwhile, ToBeSoft is a company engaged in enterprise software (UI/UX) development and biopharmaceutical development. It has recorded operating losses for five consecutive years on a consolidated basis since 2017. Earlier this year, it was designated as an investment caution stock due to internal accounting management system inadequacies. Noble M&B is an optical specialist company producing lenses applied to cameras and black boxes. It also operates bio-business, steel business, limestone, and mining development businesses. It has recorded operating losses annually on a consolidated basis since 2017.