[At a Crossroads] DYD④ Stock 'Bomb' Explodes... Does Shareholder Bear Loss from Sambutogeon?

30% of Total Shares Released... More Remaining Volume
Large-Scale Losses at Sambutogeon... Passing the Burden to Shareholders

At DYD, a company listed on KOSDAQ, there is a surge in requests to convert convertible bonds (CB) and bonds with warrants (BW) into shares. Concerns have been raised that if a large volume of shares is released on the 25th and 26th, the value of existing shareholders' stocks could be diluted. Moreover, Sambutogeon, which aggressively purchased these CBs and BWs, is also suffering significant losses, intensifying the controversy.

According to the Financial Supervisory Service's electronic disclosure system on the 22nd, DYD announced that conversion requests for the 5th series CB worth 3.5 billion KRW and exercise requests for the 3rd series BW worth 7.8 billion KRW have been received. Conversion requests were made multiple times from the 7th to the 11th.

As a result, the total number of shares to be converted amounts to 22,596,651 shares, which corresponds to about 30% of DYD's total outstanding shares. Among these, 2,551,360 shares were already listed as new shares and released into the market on the 20th. On that day, DYD's stock price experienced an intraday drop of over 7%.

The remaining 20,046,515 shares will be released on the 25th and 26th. Although the official new share listing dates are set for the 27th and 28th, short selling of rights is possible from three trading days prior.

The conversion price for these CBs and BWs is 500 KRW. From the investors' perspective, they are still within profitable territory. However, there is a possibility of a sharp decline if a large volume floods the market at once. Furthermore, there are even more CB and BW volumes remaining beyond the newly listed shares, which is expected to put additional pressure on the stock price.

As of the 11th, the 5th series CB still has a face value of 3.5 billion KRW remaining, which can be converted into a total of 4,320,987 new shares. For the BW, 10.8 billion KRW remains, allowing for the issuance of 21,607,245 new shares. Additionally, there is the 7th series CB worth 5 billion KRW, convertible into shares starting from May 31, 2025. If this CB is converted, another 10 million shares will be released into the market.

The reason for this large-scale release of CBs and BWs into the market is the acquisition of Sambutogeon. In May 2022, DYD signed a management rights transfer agreement with the existing largest shareholder of Sambutogeon, Iseok Industrial Development, and acquired shares of Sambutogeon several times until mid-this year. As of April 16, DYD invested a total of 83.4 billion KRW in Sambutogeon and secured an 11.49% stake. Currently, due to forced sales and other factors, only 3.48% of the shares remain.

To finance the acquisition of Sambutogeon, DYD issued 10 billion KRW worth of 5th series CBs in February last year. Additionally, on February 22, it raised 25 billion KRW worth of 3rd series BWs through a public offering. After the CBs and BWs are converted into shares and released into the market this time, it essentially means that the shareholders who bought those shares financed the acquisition of Sambutogeon.

However, DYD has already suffered significant losses from the Sambutogeon acquisition. As of the end of the third quarter this year, the book value of Sambutogeon on DYD's books is 11.2 billion KRW, which is 85% lower than the acquisition cost of 77 billion KRW. In this quarter alone, DYD recorded an impairment loss on investment securities of 26.8 billion KRW. Sambutogeon's performance is also poor, continuing to incur hundreds of billions of KRW in losses since DYD's acquisition.

DYD was contacted for comment but did not respond.