KNW, CB Lowest Conversion Within a Year of Issuance... "Warning of 50% Total Shares Release"

June Issued 50 Billion KRW CB Conversion Price... Lowest in Less Than 3 Months
Major Shareholder Strengthens Control Upon Stock Conversion... Common Shareholders Face Stock Price Dilution

The conversion price of the 3rd tranche convertible bonds (CB) issued by KNW fell to the minimum conversion price in less than a year since issuance. The main reason was the continuous decline in the stock price due to poor performance. Although the conversion price dropped to the minimum, this is not a bad situation for BG F Eco Materials, the largest shareholder and the recipient of the CB issuance. If all are converted into shares, they can strengthen their control. However, since a volume close to 50% of the total shares is likely to be released into the market, individual investors are expected to face unavoidable stock dilution.

According to the Financial Supervisory Service's electronic disclosure system on the 21st, KNW announced on the 19th of this month that the conversion price of the 3rd tranche CB was lowered from 9,035 won to 6,325 won.

The 3rd tranche CB was issued in the amount of 50 billion won on June 13 this year. The nominal and maturity interest rates are 1% and 2%, respectively. The conversion request period is from July 17 next year to July 16, 2027. The issuance recipient is BG F Eco Materials, the largest shareholder. KNW used the raised funds for a paid-in capital increase of its subsidiary, Fluorin Korea. Through this, Fluorin Korea used the funds to build a manufacturing plant for sulfuryl fluoride (AHF).

The conversion price of the 3rd tranche CB dropped to the minimum in less than three months after issuance. The biggest reason is the stock price decline due to deteriorating performance. KNW reported an operating loss of 1.062 billion won in the second quarter on a consolidated basis, turning to a deficit compared to the same period last year. Sales decreased by 13.80% to 20.282 billion won. As a result, the stock price, which was 9,560 won in June this year, fell to an intraday low of 5,250 won on the 9th of this month, marking the lowest point of the year. The closing price the day before was 5,950 won.

In particular, since the CB issuance scale was large, concerns about potential selling volume (overhang) are expected to increase. The number of shares convertible at the initial issuance was 5,534,034 shares. However, as the conversion price decreased, the number of shares increased to 7,905,138 shares. This is a large volume corresponding to 49.22% of the total 16,060,028 shares.

This volume release is not expected to be a significant problem from the largest shareholder's perspective. Since BG F Eco Materials was the recipient of the 3rd tranche CB issuance, converting to shares will increase their shareholding ratio. Currently, BG F Eco Materials holds 56.75% (9,113,891 shares) of KNW's shares. However, individual investors are likely to face unavoidable stock dilution due to the share conversion.