Up to 14% of Total Shares Could Be Released to the Market
Early Redemption Also a Burden, CB Balance at 16.3 Billion Won
Company's Cash Equivalents Only 15.4 Billion Won
The conversion price of Neontech's 6th convertible bond (CB) has been adjusted to its lowest level, raising concerns about an overhang. This is because up to 14% of the company's total shares could be released to the market. The 6th CB has already entered the conversion request period, and there is a high likelihood that the put option (early redemption right) will be exercised. If early redemption requests continue, it is expected to put a strain on the company's finances.
According to the financial investment industry on June 26, Neontech's 6th CB conversion price was adjusted from 2,855 won to 2,667 won. This is the minimum adjustment limit.
With the conversion price adjusted to its lowest level, the overhang issue is intensifying. The number of shares that can be converted from the 6th CB is 6,111,736, which accounts for 13.93% of the total 43,848,980 shares issued. For the 6th CB, conversion requests can be made from May 24, 2024, to June 4, 2025. Since the conversion request period has already started, the bonds can be converted into shares at any time if the stock price rises.
Neontech issued the 6th CB worth 25 billion won in May 2023. The coupon and maturity interest rates are 0.0% and 3.5%, respectively. At the time, the company announced that it would use 5.5 billion won for operating funds, including drone research and development and raw material purchases, and 19.5 billion won for the acquisition of Guile Engineering.
However, since the CB issuance, Neontech's stock price has continued to decline. The stock price, which was in the 3,500 won range at the time of issuance, fell to 1,672 won in September last year, then recovered to the mid-3,000 won range in January this year. However, as the stock price fell again, it has now dropped to the 2,300 won range.
In addition, the put option is also a burden. Last month, the company repurchased and canceled CBs worth 5.4 billion won as a result of early redemption exercised by bondholders. As of the first quarter of this year, Neontech's consolidated cash and cash equivalents stood at 15.4 billion won. The remaining balance of the 6th CB is currently 16.3 billion won.
Neontech was founded in October 2000. Its business is largely divided into manufacturing and sales of cutting equipment, distribution of factory automation (FA) systems, and manufacturing and supply of drones. Last year, the company recorded consolidated sales of 104.5 billion won and operating profit of 3.6258 billion won, representing increases of 20.34% and 67.35%, respectively, compared to the previous year. In the first quarter of this year, sales were 7.59354 billion won and operating loss was 3.16154 billion won. Compared to the same period last year, sales plunged by 83.29%, and operating profit turned to a loss.
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