La Paz Begins CB Conversion... Will 40 Billion Potential Shares Flood the Market?

If All 5th Round CB Converts, 10% Level Volume
If Stock Price Rises Further, CB·EB Also Await Conversion

Convertible bonds (CB) of Lapas, a KOSDAQ-listed company, are being increasingly converted into shares. After the CB issuance, the stock price consistently remained below the conversion price, but recently, due to the obesity treatment drug issue, the stock price has risen, leading to a surge in conversion requests.

According to the Financial Supervisory Service's electronic disclosure system on the 30th, Lapas announced on the 26th that CBs worth 2.625 billion KRW of the 5th series had been requested for conversion into shares. Previously, on the 23rd, CBs worth 201.25 million KRW of the 5th series were also requested for conversion. These CBs are scheduled to be listed as new shares between August 7 and 20.

The 5th series CB was issued on April 27 last year with a scale of 20 billion KRW. The nominal interest rate was 0%, the maturity interest rate was 3%, and the initial conversion price was 24,930 KRW. However, after the CB issuance, Lapas's stock price continuously declined, falling to the 9,000 KRW range on the 24th of last month. Consequently, the CB conversion price dropped to the refixing minimum limit of 19,944 KRW.

Despite this, since the stock price remained below the conversion price, no CB conversion requests were made. CB conversion has been possible since April 27, one year after issuance. Investors were more likely considering early redemption requests (put options). The put option can be exercised from October 27, 18 months after the CB issuance. If the stock price remained sluggish until then, there was a high possibility of a redemption demand worth 20 billion KRW.

Fortunately, Lapas's stock price began to surge from the 11th after hitting the lowest point. Lapas is a company engaged in the research, development, and manufacturing of patches using transdermal drug delivery system (TDDS) technology with soluble microneedles. Currently, most sales are generated in the cosmetics field, such as beauty device patches, and the company is expanding its business areas to pharmaceuticals and medical devices.

In particular, the stock price rose as Lapas conducted clinical trials of the DW-1022 patch, which converts the obesity treatment drug "Wegovy" injection by Danish pharmaceutical company Novo Nordisk into a microneedle form. As of last year, Wegovy's sales amounted to approximately 4 trillion KRW. Analysts expect that if Lapas succeeds in developing a patch, which is a more convenient method than injections, it could lead to large-scale sales.

With the stock price surpassing the conversion price due to this issue, CB investors immediately proceeded with stock conversion. The shares to be converted this time amount to 232,519 shares, representing 2.66% of the total shares. Although still at a minor level, if the remaining 15.3625 billion KRW of the 5th series CB is fully converted, a total of 770,281 shares, about 9% of the total shares, will flood the market. Theoretically, this would dilute the stock value by about 10%.

Additionally, there remain 6.5 billion KRW worth of 4th series CB and 8 billion KRW worth of 6th series exchangeable bonds (EB). The total convertible or exchangeable shares of these amount to 416,125 shares, about 5% of the total shares. However, since the conversion price is 40,864 KRW for CB and around 31,121 KRW for EB, immediate stock conversion requests are not expected.