Korea Advanced Materials announced on the 7th that it has deleted the repricing (conversion price adjustment) clause through an agreement with the holders of the 2nd tranche convertible bonds (CB).
With this measure, Korea Advanced Materials will change its previous accounting treatment of recognizing convertible bonds as liabilities rather than equity, which is expected to significantly improve its financial structure.
A company official explained, "Due to the stock price increase after the CB issuance last year, a derivative valuation loss of 8.1 billion KRW, exceeding last year's sales, occurred. However, this is merely an accounting loss, and no actual cash outflow or net loss has occurred."
He added, "Currently, the stock price is significantly higher compared to last year, so there was a possibility of additional derivative valuation losses this year as well. Therefore, we removed the derivative valuation loss risk through an agreement with bondholders."
According to IFRS (International Financial Reporting Standards) and K-IFRS (Korean International Financial Reporting Standards), convertible bonds with repricing clauses are classified as financial liabilities rather than equity and affect profit and loss depending on stock price fluctuations. Valuation losses occur when the stock price rises, while valuation gains occur when it falls.
However, with the deletion of the repricing clause, Korea Advanced Materials has escaped such financial volatility and secured a more stable financial condition.
A Korea Advanced Materials official stated, "The deletion of the repricing clause sends a positive signal to investors regarding the company's future stock price," adding, "We plan to focus on strengthening technological competitiveness and enhancing corporate value based on a stable financial foundation."
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