[Giro-ui-sangjangsa] DTNCRO ③ Pledges Nearly All Assets To Repay Debt... Financial Burden Mounts

All Assets Pledged from Real Estate to Major Shareholder Stake
Refinancing with High-Interest Debt Increases Interest Expense Burden

Park Chaegyu, Chairman of DT&C.

DTNCRO, a KOSDAQ-listed company, has pledged most of its assets, including real estate and shares, as collateral and borrowed 20 billion won. However, as most of the funds are scheduled to be used for refinancing existing debt, the actual cash the company will have on hand is expected to be minimal. In addition, because the company raised funds at an interest rate far higher than that of its existing debt, its financial burden appears to have increased.

According to the Financial Supervisory Service's electronic disclosure system on February 9, DTNCRO announced on February 5 that it had decided to issue 14 billion won worth of convertible bonds (CB) and 6 billion won worth of bonds with warrants (BW), for a total of 20 billion won. The securities will be issued to "Eugene Mid-Cap Value-Up Private Equity Limited Partnership," a private equity fund established by Eugene Private Equity (Eugene PE).

DTNCRO plans to use 17.9 billion won of the proceeds to repay debt. Previously, on February 22, 2024, DTNCRO issued its first CB tranche worth 16 billion won to secure operating funds. One year after issuance, from February 22 last year, bondholders became able to request conversion into shares, and from February 22 this year, two years after issuance, they will be able to exercise a put option for early redemption.

Although more than a year has passed since the conversion became possible, no conversion into shares has taken place. This is because the CB conversion price is far higher than DTNCRO's current share price. The conversion price of this CB is 7,344 won and has already been adjusted down to the minimum limit under the refixing (conversion price adjustment) mechanism. As of the closing price on February 6, DTNCRO's share price was 2,635 won. Converting into shares would therefore result in a loss for investors.

For this CB and BW issuance, DTNCRO pledged as collateral its efficacy evaluation center, PK/PD center, and other land and buildings located in Korea that it owns. In addition, the site of the technology convergence center owned by its largest shareholder, DT and C, was also provided as additional collateral.

In particular, Park Chaekyu, Chairman of DT and C Group, also pledged 3,169,366 of his DT and C shares (27.4%) as collateral. Currently, all of Chairman Park's shares are pledged as collateral for loans. If there is any disruption in repayment, Chairman Park's stake in DT and C could fall to 0%.

Thus, although DTNCRO raised funds by what is colloquially called "scraping together every last bit" of collateral, the company's financial condition and the sense of uncertainty are seen as having further deteriorated.

First, the interest burden has increased. The first CB tranche issued in 2024 carried a 0% coupon rate and 0% yield to maturity. By contrast, the newly issued CB carries a 2% coupon and 5% yield to maturity, while the BW carries a 2% coupon and 8% yield to maturity, representing high interest rates. As a result, the company will incur an additional 400 million won in annual interest expenses. Upon maturity redemption, it will have to pay several billions of won more in interest.

In addition, because the CB and BW were issued when the share price was low, a large overhang (potential supply overhang) risk has emerged. If these CBs and BWs are converted into shares, a large volume equivalent to about 47% of the current total number of outstanding shares could hit the market at once.

Despite raising 20 billion won while taking on both financial risk and overhang pressure, the fact that the actual cash DTNCRO will retain is only about 2.1 billion won is adding to market concerns. As of the end of the third quarter of last year, DTNCRO's cash and cash equivalents stood at 600 million won, down 4.1 billion won from 4.7 billion won at the end of 2024 in just three quarters.

Against this backdrop, some in the market are raising the possibility that DTNCRO may need to raise additional funds. There are also views that, with most assets already pledged as collateral and borrowing capacity nearly exhausted, the only remaining option is to turn to existing shareholders for funding.

In response, an official at DTNCRO stated, "Although it is not a large amount, the inflow of 2.1 billion won in cash is helping us operate the company," adding, "We are not considering any additional funding at all at this time, so there will be no funding issues for at least the next year."