Auto&, 4th Convertible Bonds Ultimately Redeemed Early

Conversion Price at 8,697 KRW, Closing Price on the 12th at 3,110 KRW
Continued Losses Remain a Concern

As Auto&'s stock price has struggled to rebound, a portion of its fourth convertible bonds (CB) has been redeemed early through a put option. Given the significant gap between the current stock price and the CB conversion price, there is a possibility that the remaining bonds may also be redeemed early. However, since the company holds sufficient cash and short-term financial assets, it is expected to have no major difficulties in meeting these redemption obligations.

According to the Financial Supervisory Service's electronic disclosure system on August 13, Auto& recently announced that it had acquired CBs worth 7.4 billion KRW before maturity, following an early redemption request from bondholders.

The reason for the early redemption is the persistent weakness in the company's stock price. The conversion price for the fourth CB is 8,697 KRW, which is the minimum conversion price. The previous day's closing price for Auto& was 3,110 KRW, indicating a significant disparity between the conversion price and the actual stock price. On August 11, the price even dropped to 3,010 KRW, marking an all-time low based on closing prices. The conversion request period for the fourth CB runs until July 8, 2028, while the early redemption request period began on August 8 of this year.

However, it appears that the company is capable of redeeming all of the fourth CBs without difficulty. As of the first quarter of this year, Auto& held 16.9 billion KRW in cash and cash equivalents and 9 billion KRW in short-term financial assets. The total amount of the fourth CB issue is 15 billion KRW.

Nevertheless, the company's continued poor performance remains a concern. On a consolidated basis, revenue increased from 47.8 billion KRW in 2022 to 60.4 billion KRW in 2023, but then declined to 57.2 billion KRW last year. In addition, the company has been operating at a loss since 2022. Last year, it posted an operating loss of 3.3 billion KRW.

In the first quarter of this year, revenue was 12.9 billion KRW, down 12.3% year-on-year. The operating loss widened to 600 million KRW, compared to a loss of 200 million KRW in the same period last year. Due to continued weak performance, the debt ratio rose from 139.9% in December of last year to 180.4% in the first quarter of this year.

Auto& issued its fourth CB on August 4, 2023, to invest in new businesses such as A2B (After-market To Before-market) products and service platforms. The company initially planned to invest 2 billion KRW, 8 billion KRW, and 5 billion KRW in 2023, 2024, and 2025, respectively. However, the actual amount spent was only 2.785 billion KRW.