[At the Crossroads] DT&CRO ① Sluggish Stock and Weak Finances... What Will Happen to the 16 Billion Won CB Redemption?

Current Stock Price at Half the CB Conversion Price
Cash and Cash Equivalents at 600 Million Won... Market Watches Response to Put Option

With just over two months remaining until the redemption request date for the 16 billion won worth of convertible bonds (CB) issued last year by KOSDAQ-listed company DT&CRO, concerns over redemption risk are mounting. This is because DT&CRO’s recent stock price is significantly below the CB conversion price. Given the company’s weak financial structure, the market is closely watching how it will respond to the redemption risk.

According to the Financial Supervisory Service’s electronic disclosure system on December 22, DT&CRO issued CBs worth 16 billion won on February 22 last year. The purpose of the issuance was to establish clinical trial center facilities and to secure operating funds. The CBs were issued to Aone Asset Management, C Square Asset Management, GVA Asset Management, Focus Asset Management, and Shinhan Asset Management.

These CBs can be converted into shares starting one year after issuance, and from two years after issuance, the holders can exercise an early redemption option (put option). Therefore, since February 22 this year, they have been convertible into shares, and the put option can be exercised starting February 22, 2026.

However, no requests for conversion into shares have been made yet. This is because DT&CRO’s stock price is significantly lower than the CB conversion price. The conversion price of these CBs is 7,344 won, which is the lowest limit set by the refixing (conversion price adjustment) clause. Recently, DT&CRO’s stock price has been hovering around 3,200 won.

From the investors’ perspective, converting into shares prematurely could result in substantial losses, especially with the risk of an overhang (potential supply glut) issue. As a result, there are concerns in the market that redemption requests for the entire 16 billion won could be made all at once on the put option exercise date.

However, it is expected that DT&CRO will find it difficult to redeem the CBs in full with its own cash. DT&CRO is a contract research organization (CRO) providing non-clinical and clinical services. As of the end of the third quarter this year, its total assets stood at 87.3 billion won and total liabilities at 63.9 billion won, resulting in a debt ratio of 273%.

In particular, current assets are 23.7 billion won while current liabilities are 49 billion won, resulting in a current ratio of only 48%. A current ratio of 150% is generally considered appropriate. This means that DT&CRO currently does not have enough liquid assets to cover its liabilities due within one year. Furthermore, cash and cash equivalents are at a meager 600 million won.

It is also difficult for the company to offset its weak financial structure with its business performance. DT&CRO posted an operating loss of 12.1 billion won in 2023, returning to a significant deficit, and it has continued to post losses through this year. Cumulative operating losses for the first three quarters of this year amount to 6.4 billion won.

The parent company, DT&C, is also not in a position to provide substantial support to DT&CRO. DT&C’s current ratio is only 45%. Its cash and cash equivalents, including short-term financial products, amount to just 2.5 billion won. However, it recently secured some liquidity by selling its stake in affiliate LabT for 11.1 billion won.

An official from the financial investment industry commented, “Given that the CB interest rate is 0%, bondholders likely aimed for capital gains, but with the current stock price, they must also consider the possibility of exercising the put option. If there is no momentum for a rise in DT&CRO’s stock price or positive signals of improved performance, additional fundraising cannot be ruled out.” Meanwhile, multiple attempts were made to contact DT&CRO for comment, but no response was received.