[At a Crossroads] The Codi① Major Shareholder Secures CB at Low Price... Only Minority Shareholders Suffer

Conversion price significantly low but CB issued at face value
Minority shareholders' stock diluted by 15% while major shareholder profits

Capture of TheCodi homepage.

The KOSDAQ-listed company The Cody sold convertible bonds (CB) it held to its largest shareholder at a discount. Although the conversion price is much lower than the current stock price, allowing immediate profit realization, the CB was transferred at face value without any premium. This CB was immediately converted, and while the largest shareholder stands to gain significantly once the new shares are listed, minority shareholders are expected to suffer losses due to stock price dilution.

According to the Financial Supervisory Service’s electronic disclosure on the 10th, The Cody announced on the 8th that it sold 3.51 billion KRW worth of its 7th series CB to its current largest shareholder, Iseok Industrial Development. As of the end of Q1 this year, Iseok Industrial Development holds a 12.32% stake in The Cody, making it the largest shareholder. The disposal amount was the same as the face value of the CB, 3.51 billion KRW.

The conversion price of this CB is 4,940 KRW. The closing price of The Cody’s stock the previous day was 6,500 KRW. Converting the CB into shares would yield a profit of over 30%. In fact, Iseok Industrial Development requested conversion immediately upon purchasing the CB. This means Iseok Industrial Development bought The Cody shares priced at 6,500 KRW per share for 4,940 KRW each.

This CB was first issued in September 2020 with a scale of 7.51 billion KRW. About a month later, The Cody repurchased it. Since then, The Cody’s business reports did not show any trace of the 7th series CB. Technically, since the bonds were redeemed, it appears the company did not disclose this. CBs are recognized as potential pending supply in the market, making them an important factor in investment decisions.

This CB reappeared after about two years. In July last year, Iseok Industrial Development purchased 1.5 billion KRW worth of the 7th series CB from The Cody. At that time, the purchase price was also at face value. No premium was applied despite the difference between the conversion price and the stock price. After about a year, The Cody transferred the remaining 3.51 billion KRW worth of CB to Iseok Industrial Development again at face value.

Thus, although the largest shareholder Iseok Industrial Development was able to buy The Cody shares at a low price, existing shareholders are expected to incur relative losses as a large volume of shares is anticipated to be released after the CB conversion.

If this 3.5 billion KRW CB is converted, a total of 710,518 new shares will be newly issued to the market. This represents a large volume equivalent to 17.6% of The Cody’s existing total issued shares. For existing shareholders who did not receive CBs, this means their stock value will be diluted by about 15%.

Moreover, it seems that when and how the converted shares will be released into the market will not be disclosed. According to the company, Iseok Industrial Development immediately sold part of the acquired 7th series CB to other investors. The identity of these investors and the sale price have not been revealed. It is presumed that this was done because if the largest shareholder directly converts the CB into shares and sells them on the market, it would be subject to disclosure requirements, so the CB was transferred to others.

Regarding this, a representative of The Cody stated, “Since the conversion request deadline is the 22nd, we had no choice but to sell the CB to the largest shareholder to secure funds quickly and easily.” However, they did not respond to why the CB was sold at face value.

Meanwhile, The Cody is a company that manufactures semiconductor and display equipment. Earlier this year, it became a non-compliant disclosure company due to 10 cases of false or incorrect disclosures regarding decisions to transfer stocks and equity securities of other companies and one withdrawal, and it is currently designated as an investment caution stock.