[At a Crossroads] DYD② Selling Expensive CBs at Low Prices... Who Benefits from the Profit?

Company incurs loss from CB sale
Only consortium, corporation, and individuals gain valuation profit

DYD, a KOSDAQ-listed company, sold its previously expensive corporate convertible bonds (CB) at a low price. Although the company incurred a loss from this transaction, CB purchasers gained valuation profits as the stock price rose recently due to management rights sales and other factors.

According to the Financial Supervisory Service's electronic disclosure system on the 8th, DYD announced the resale of 6 billion KRW worth of its 5th series CB the day before. These CBs were originally issued in February last year with a total value of 10 billion KRW. At that time, DYD issued the CBs to raise funds for acquiring Sambutogen.

Subsequently, on December 28 last year, DYD repurchased all the CBs. The acquisition cost was 10.6 billion KRW. DYD stated that it acquired the bonds early before maturity through negotiations with bondholders. The acquisition amount included interest accrued from issuance to repurchase, which amounted to about 6% of the issue price.

However, DYD resold the CBs at their face value, which was lower than the repurchase price. Despite the conversion price of the CBs being significantly lower than DYD’s stock price?allowing immediate valuation gains upon acquisition?the company sold them at a low price.

The current conversion price of the 5th series CB is 500 KRW per share. At issuance, the conversion price was 1,737 KRW, but as the stock price continuously declined, it was re-fixed (conversion price adjusted) down to the minimum limit of 500 KRW. Meanwhile, DYD’s stock price surged to over 1,000 KRW intraday by June 6, just before the announcement of the management rights sale.

Even considering the stock price drop on the previous day, if the CBs are converted into shares at this level, CB purchasers can expect significant valuation gains. However, the conversion could release about 12 million shares, accounting for over 15% of the total shares outstanding, which may result in losses for general minority shareholders.

The buyers of these CBs include corporations, investment associations, and individuals. AMI Investment, a corporation whose largest shareholder is KPM Tech?a KOSDAQ-listed company?purchased 1 billion KRW worth. KPM Tech operates in pharmaceuticals, machinery, and pharmaceutical & bio sectors and has posted losses for several years on a consolidated basis. Its affiliates include Telcon RF Pharmaceutical and NewOn.

Also purchasing 1 billion KRW worth is Mr. Lee Jong-pil, CEO of BL Cosmetic. BL Cosmetic signed a land and building purchase agreement worth 8.9 billion KRW with DYD on June 5. Along with this contract, BL Cosmetic also received 3 billion KRW worth of DYD’s 5th series CB. Together, Mr. Lee and BL Cosmetic acquired 4 billion KRW worth of the total 10 billion KRW CB issuance.

The remaining 3 billion KRW worth will be purchased by Aeon Investment Association, whose 99.9% largest shareholder is Ms. Lee Da-bin. Other members and sources of the association’s funds have not been disclosed. Additionally, individuals Kim Jong-woon and Jang Byung-in will each purchase 500 million KRW worth of CBs.

Regarding this, a DYD representative stated, “We considered comprehensive factors such as securing liquidity, acquisition cost, and value assessment, and decided the CB sale price through consultation with the buyers.”