[At a Crossroads] Baion④ CB Bomb Explodes... Overhang Risk Highlighted

Convertible Shares Exceeding 10% of Total Stock
Unconverted Bonds Remain... Overhang Risk Persists

Convertible bonds (CB) of BioOn, a KOSDAQ-listed company, are set to be converted into a large volume of shares. More than 10% of the existing total shares will flood the market. BioOn has extended the conversion period for CB holders. Meanwhile, existing shareholders face the risk of stock dilution.

According to the Financial Supervisory Service's electronic disclosure system on the 7th, BioOn announced that the conversion rights for the 3.8 billion KRW worth of the 39th series CB have been exercised. The conversion price is 892 KRW, and the number of newly issued shares will be 4,260,086. This is a large volume equivalent to 10.5% of BioOn's current total issued shares. The new shares are scheduled to be listed on the 18th, and since short selling with rights will be possible from the 14th, three trading days prior, volatility may increase.

This CB was issued on June 4, 2021, with a total amount of 8 billion KRW. The issuance purpose was 4 billion KRW for operating funds and 4 billion KRW for acquiring other companies. However, since the acquisition has not yet been carried out, BioOn disclosed that the 4 billion KRW is being held in deposit products.

BioOn had repurchased 3.8 billion KRW worth of this CB and held it. Then, in March last year, it decided to resell this CB. However, the corporations that agreed to purchase this CB only paid 10% of the contract amount as a deposit and continuously delayed the payment of the remaining balance.

Eventually, after more than a year of delayed payment, the acquisition contract was finalized on the 3rd, one day before the CB maturity. The original conversion period for this CB was until the 3rd of last month, but BioOn provided convenience by extending the conversion period and resold the CB.

The entities acquiring this CB are KG Daebu and Union J. They purchased 2 billion KRW and 1.8 billion KRW nominal value of CB, respectively. They bought the CB for 4.14 billion KRW, which includes an 8.95% premium over the nominal value. Dividing by the number of convertible shares, the average price per share is about 972 KRW.

At the time they acquired the CB, BioOn's stock price was on the rise. The stock price, which had dropped to 723 KRW intraday on April 17, broke through the 1,300 KRW level on the 30th of last month. As of the 5th, the stock price is moving around the 1,100 KRW level. If the stock price maintains this level until the CB is converted into shares and listed, KG Daebu and Union J can earn more than 13% profit in a short period.

The representatives of KG Daebu and Union J are the same person, Mr. Choi Jin-won. Born in 1987, CEO Choi has served as the head of Altus Holdings and BNH Investment and has invested in several listed companies. At the end of last year, he was also nominated as an inside director candidate when Canaria Bio M sold Leaders Technology Investment (now Plutos) to ARC Korea.

Meanwhile, besides this CB, BioOn still has the 40th series CB worth 1.5 billion KRW that can be converted immediately. The conversion period started in March, and if converted into shares, a total of 1,335,707 shares could be released into the market. This volume corresponds to 3.3% of the current total shares. Moreover, there is also a recently issued CB worth 10.5 billion KRW, and when its conversion period arrives next year, there is concern that new shares exceeding 30% of the total shares could flood the market again.