'No Interest Needed'... Which Companies Are Attracting Investors in Droves?

Raised 33 Billion Won with 10% Increase Due to Investor Surge
No 'Repricing' Condition to Defend Stock Price Decline
Institutions Expect "Full-Scale Profitability Expansion"

[Asia Economy Reporter Jang Hyowon] Borrowing money with no interest. It is a bond that can later be converted into stocks, but there is no conversion price adjustment (refixing) condition to guard against stock price declines. Nevertheless, institutional investors rushed to lend money to this company.

This is the story of global aerospace specialist Kenko Aerospace. Amid the ongoing interest rate hikes in the United States, Kenko Aerospace has successfully issued zero-interest convertible bonds (CBs).

On the 21st, Kenko Aerospace announced that it had issued 33 billion KRW worth of the 9th series anonymous coupon-bearing unsecured CBs. The maturity date is February 23, 2028.

The nominal interest rate of the CBs issued this time is 0%. There is no need to pay interest while borrowing the money. Also, there is no conversion price refixing option. Typically, investors set a refixing limit up to 70% of the initial conversion price when subscribing to CBs because the stock price may fall until conversion is possible.

However, the Kenko Aerospace CB this time does not have safety measures such as refixing. Without the belief that the stock price will rise at the conversion point two years later compared to the current conversion price of 15,684 KRW, it is difficult to invest.

Nevertheless, this CB attracted funds exceeding the initial set amount of 30 billion KRW, leading to a 10% increase in the final amount, marking a successful issuance. This is interpreted as investors expecting Kenko’s future stock price increase and judging that sufficient capital gains from stock conversion are possible.

The Kenko CB investment was participated in by KB Securities with 5.9 billion KRW, Samsung Securities with 4.5 billion KRW, NH Investment & Securities with 4.5 billion KRW, Mirae Asset Securities with 3.6 billion KRW, Kiwoom Securities with 3 billion KRW, Korea Investment & Securities with 2 billion KRW, Ebest Investment & Securities with 2 billion KRW, and four other firms.

CB investors cited Kenko’s sales growth and the full-scale profitability expansion this year as reasons for investment. Kenko’s sales over the past three years were 31.6 billion KRW in 2020, 54.7 billion KRW in 2021, and 74.9 billion KRW last year. On a quarterly basis, it has achieved record-high quarterly sales for eight consecutive quarters since listing. Also, profitability has been sustained since the first half of last year.

An investment banking (IB) industry official said, “As the front markets such as aircraft manufacturing, aerospace defense, space, and urban air mobility (UAM) have also entered a full-fledged boom period, Kenko’s performance growth is expected to accelerate,” adding, “Despite the current period of fundraising difficulties, this appears to be the most successful deal of the year.”

Meanwhile, Kenko plans to use the funds raised this time to acquire and fully redeem the 7th and 8th series bonds, thereby resolving overhang risk and maximizing shareholder value.