Will Shinhan Securities, Which Revived Genexine, Successfully Convert the 13.5 Billion KRW CB?

Conversion price 11,308 KRW, average acquisition cost per share 11,106 KRW
Listing scheduled for the 24th... Interest in whether Shinhan Investment Corp will make a profit

New drug development company Genexine has succeeded in reselling convertible bonds (CB) it held just before maturity. However, since the conversion price is not significantly different from the current stock price, attention is focused on whether Shinhan Investment Corp., which acquired the bonds, can manage them well.

The new headquarters of Genexine, located in Magok, Gangseo-gu, Seoul, is the "Genexine Progen Bio Innovation Park" (left building). On the right is the research institute of its affiliate Handok, the "Handok Future Complex." Photo by Lee Chunhee

According to the electronic disclosure by the Financial Supervisory Service on the 4th, Genexine announced that the conversion rights for the 6th series CB worth 13.5 billion KRW were exercised. The conversion price per share is 11,308 KRW, resulting in the issuance of a total of 1,193,845 new shares. This accounts for 2.96% of the total issued shares.

The 6th series CB was initially issued in March 2018 with a scale of 50 billion KRW. At that time, the ‘GX Shinhan Intervest No.1 Private Equity Partnership,’ formed by Shinhan Investment Corp. and Intervest, received 45 billion KRW, and the remaining 5 billion KRW was taken by Kiwoom Private Equity.

Among these CBs, 35 billion KRW were converted in August 2020. At that time, the CB conversion price was 87,278 KRW, and as Genexine’s stock price surged to the 130,000 KRW range following the announcement of developing a COVID-19 vaccine, CB investors are estimated to have made significant profits.

However, Genexine halted COVID-19 vaccine development in March last year, and the stock price continued to decline. As the stock price remained below the conversion price of the 6th series CB, investors holding the remaining 15 billion KRW demanded redemption, which Genexine eventually fulfilled.

After redemption, Genexine did not cancel the CB but held it and resold it to Shinhan Investment Corp. on the 3rd, about two weeks before maturity. If it had not been resold, it would have been canceled, but by selling it, liquidity was secured.

Genexine is a new drug R&D company developing anticancer immunotherapies, next-generation protein drugs, and new DNA vaccines. Its main revenue comes from milestones related to new drug technology transfers and research service contracts.

Genexine recorded sales of 16.1 billion KRW, an operating loss of 33.7 billion KRW, and a net loss of 57.1 billion KRW last year. Except for an operating profit of 1 billion KRW in 2015 after listing on KOSDAQ in 2009, the company has posted losses for 12 years. Without external capital injection, the company cannot sustain its operations.

Accordingly, Genexine conducted a rights offering worth 85 billion KRW earlier this year. Along with this recent CB resale, it has secured about 100 billion KRW in liquidity.

The sale price of Genexine’s 13.5 billion KRW face value CB was 13.3 billion KRW. Considering that Genexine’s recent stock price has been hovering around 12,000 KRW, near the conversion price of 11,308 KRW, the bonds were sold at a discount. Shinhan Investment Corp.’s average acquisition price per share is 11,106 KRW. Therefore, the market is watching whether Shinhan Investment Corp. can absorb this CB profitably. If the stock price falls about 10% from the current level, it could enter a loss zone.

Meanwhile, the 1,193,845 shares converted from the 6th series CB worth 13.5 billion KRW are scheduled to be listed on the 24th. Since the settlement period takes three trading days, holders of the converted shares can start selling from the 22nd.