[At a Crossroads] Spear Power① CB Sold at Low Price to ‘Teuksugwan-gyeja’ to Be Released

CB-Holding Major Shareholders Gain 50% Profit...Minority Shareholders Face Stock Dilution
Low-Price Sale and Litigation Issues...Company States "Legal Procedures Followed"

Spearpower, a KOSDAQ-listed company, has been found to have sold convertible bonds (CB) to related parties at prices lower than the market rate. These CBs are set to convert into shares on the 24th, allowing the related parties holding the CBs to expect a market gain of over 50%. Meanwhile, minority shareholders are faced with the burden of stock price dilution due to the issuance of new shares.

According to the Financial Supervisory Service's electronic disclosure on the 19th, Spearpower's 6th series CB worth 3 billion KRW will be converted into shares on the 24th. This corresponds to a total of 527,889 shares, approximately 4% of the total shares. These shares may be released into the market through short selling from the 22nd, three days before the listing.

The 6th series CB was issued in October 2022 to companies including Sangsangin Savings Bank, totaling 6 billion KRW, with 3 billion KRW converted last November. The CBs being converted this time are the remaining 3 billion KRW. These CBs are held by 'Jiyeonjohab' and 'SM1hojoab', holding 1.8 billion KRW and 1.2 billion KRW respectively.

Previously, Spearpower exercised the put option (call option) attached to the 6th series CB and repurchased 3 billion KRW worth. They acquired it at approximately 31.8 billion KRW, which includes about a 6% premium over the face value. This was immediately resold to Jiyeonjohab and SM1hojoab at the same price.

The conversion price per share for the 6th series CB is 5,683 KRW. Considering the acquisition price by Jiyeonjohab and others, their average price is about 6,025 KRW. As of last month, Spearpower's stock price fluctuated between 8,000 and 11,000 KRW. The closing price as of the previous day was 8,960 KRW.

If the stock price remains at this level until the 22nd, Jiyeonjohab and others could realize a profit of about 50%, amounting to approximately 1.5 billion KRW. This is why it is referred to as a 'Lotto CB'. On the other hand, ordinary shareholders theoretically experience stock price dilution due to the issuance of new shares from the CB conversion.

Jiyeonjohab, which has been able to earn a large sum of money while sitting still, is a 'related party' of Spearpower. Spearpower stated in its business report that Jiyeonjohab is included as an other related party due to "mutual exchanges among management, involvement in fundraising and fund management processes."

Currently, the representative of Jiyeonjohab is Mr. Song Hogil. Mr. Song was a shareholder of Spearpower until the first half of last year. The largest shareholder of Jiyeonjohab is Atoz Partners. There are two registered corporations named 'Atoz Partners' in Korea. According to the corporate registry of one of them, Park Jonghong, who was appointed as an inside director of Spearpower this time, previously served as CEO. Park is a former executive at Samsung SDS and CNT85.

Additionally, in July 2022, Spearpower invested 5.2 billion KRW in Jiyeonjohab and sold it just a few days later.

Another CB holder, SM1hojoab, is also closely related to Spearpower. The CEO of SM1hojoab is Mr. Lee Dongha, the executive officer is Ms. Kim Misook, and the largest shareholder is Mr. Kim Jungju. They are related to 'Mihojohab', which acquired Spearpower's 5th series CB in 2022.

By selling CBs at low prices to related parties like these, Spearpower has also faced lawsuits. On the 11th of last month, Big Brothers filed a lawsuit against Spearpower seeking a provisional injunction to prohibit the issuance and listing of shares due to the exercise of convertible bond conversion rights.

In their claim, Big Brothers argued that "Spearpower caused significant damage to the company by reselling CBs to related parties Jiyeonjohab and SM1hojoab at prices significantly lower than fair market value, constituting breach of fiduciary duty." However, Big Brothers withdrew the lawsuit on the 16th.

In response, a Spearpower representative said, "We do not know the reason why Big Brothers withdrew the lawsuit," and added, "The CB resale was conducted through proper procedures, including holding a board meeting."