[At the Crossroads] Corpus Korea ① Will a 'CB Bomb' Erupt, Equal to Half of All Shares?

22.7 Billion Won in CBs Awaiting Conversion
Stock Dilution Inevitable... All Eyes on Largest Shareholder's Next Move

With the change in the largest shareholder of KOSDAQ-listed Corpus Korea, attention is turning to whether the convertible bonds (CB) issued last year will be converted into shares. If these CBs are converted, the resulting shares would account for 45% of the total outstanding shares, potentially diluting the stock price.

According to the Financial Supervisory Service’s electronic disclosure system on October 17, Corpus Korea issued its 4th round of unsecured private CBs worth 26 billion won on May 22 last year. The CBs were allocated to A-One Asset Management, Life Asset Management, Orion Asset Management, Suseong Asset Management, and Shin Young Securities. At the time, Corpus Korea used the proceeds from these CBs to repay its 3rd round CBs worth 18 billion won.

These CBs have both a coupon rate and a maturity interest rate of 0%. It is interpreted that investors effectively invested with the intention of converting the bonds into shares. Since May 22 this year, these CBs have been eligible for conversion into shares. The initial conversion price was 1,576 won per share. However, as Corpus Korea’s stock price continued to decline, the current conversion price has dropped to the minimum adjusted price of 1,261 won.

Corpus Korea specializes in content distribution and production. It secures content such as dramas, variety shows, music programs, and web novels from domestic production companies and broadcasters, and supplies them to major Japanese broadcasters, DVD distributors, and OTT platforms. In 2022, the company acquired Kim Jonghak Production and has since been jointly producing Netflix original works. As of last year, the company recorded sales of 41.8 billion won and an operating loss of 29.4 billion won.

Due to this poor performance, Corpus Korea’s stock price remained in the 1,000-won range, and CB holders did not request conversion. However, when the stock price rose to the 1,300-won level in August, some holders began to request conversion for a portion of their bonds.

As of September 15, 22.7 billion won worth of CBs remained unconverted. The number of shares eligible for conversion is 18,008,564, which represents 45% of all Corpus Korea shares. If all these CBs are converted into shares, the value of the existing shares could be significantly diluted.

Against this backdrop, the market is closely watching the management moves of the new largest shareholder, Green Growth. On October 14, Corpus Korea CEO Oh Youngsub signed a stock purchase agreement to transfer 20,836,764 shares (50.5%) to Green Growth and one other party. The transaction price was 1,230 won per share, totaling 25.6 billion won.

Additionally, Green Growth decided to participate in a paid-in capital increase worth 8 billion won and a CB issuance worth 20 billion won. However, these funds will not be used to repay the existing CBs. The purpose of the capital increase is to secure 'operating funds,' and the purpose of the CB issuance is for 'acquisition of other companies.'

Furthermore, Green Growth used the call option on the 4th round CBs to transfer 7.8 billion won worth to Green Innovation. Considering that Corpus Korea’s stock price is currently in the 1,700-won range, converting these bonds could generate short-term profits.

Meanwhile, the earliest date for redemption requests on the 4th round CBs is May 22 next year.