[After CB Issuance] ④ Sewon Cellontech, Long-Term Growth 'OK' but Short-Term Overhang Burden 'A Mountain to Overcome'

Issuing 40 Billion KRW Convertible Bonds and Investing 35 Billion KRW
Launching Regenerative Medicine Business with 1 Trillion KRW Sales Target through RMS Camp Establishment
Current Stock Price and Conversion Price Difference Not Significant

[Asia Economy Reporter Park Hyungsoo] Sewon Cellontech is making a large-scale investment using convertible bonds issued a year ago, but its stock price seems to be held back by concerns over overhang (potential pending sell orders). Although some fatigue from the recent sharp rise in the stock price is also at play, the possibility that conversion requests may come in if the stock price rises further is affecting investor sentiment.

According to the Financial Supervisory Service on the 21st, Sewon Cellontech privately issued convertible bonds worth 40 billion KRW in June last year to raise funds for facilities and operations. Convertible bonds were acquired by KOSDAQ venture funds managed by Susung Asset Management and Timefolio Asset Management, among others. Sewon Cellontech is a company that manufactures chemical plant equipment and hydraulic machinery. It is developing cell therapies as a future growth engine.

At the time of issuance, the coupon rate was zero, and the maturity interest rate was 1%. The bonds can be converted into common stock between March 26 last month and May 26, 2024. The conversion price was 3,695 KRW, but due to a clause allowing repricing (refixing) in case of a stock price decline, it was lowered to 2,587 KRW, which is 70%. On March 20, when the domestic stock market plunged due to the impact of the novel coronavirus (COVID-19), Sewon Cellontech’s stock price fell to the year’s lowest at 1,450 KRW.

Of the funds raised through the convertible bonds, 35 billion KRW was allocated for bio-collagen production facilities, RegenGraft, cell therapies, buildings, structures, and production facilities for the cord blood bank. RegenGraft is a therapeutic material used to treat various damaged human tissues.

On July 1 last year, Sewon Cellontech held a groundbreaking ceremony for the construction of the ‘RMS Camp’ in Geumgok-ri, Jinjeop-eup, Namyangju-si, Gyeonggi Province, located in the Geumgok General Industrial Complex. The RMS Camp will be built on a total area of 16,318 m2 (approximately 4,940 pyeong). The company plans to invest 35 billion KRW aiming for completion in 2022.

The Sewon Cellontech RMS (Regenerative Medical System) Business Division develops and manufactures cell therapies and collagen cosmetics. It also handles cord blood storage and bio research and development (R&D). Sewon Cellontech was the second in the world to develop an autologous cartilage cell therapy (Condron). Condron, which is effective in treating knee joint cartilage damage, holds 100% of the domestic autologous cartilage cell market.

Upon completion of the RMS Camp, the company will focus on ▲composite biomaterials centered on the biotherapeutic materials market, ▲cell delivery carriers focused on improving the efficacy of stem cell and cell therapy products, and

▲biopharmaceutical drug delivery systems focused on developing drug delivery system materials.

Sewon Cellontech has set long-term goals following its large-scale investment. It aims to achieve sales of 1 trillion KRW in the regenerative medicine business division by 2028. Convertible bond investors accepted the low-interest conditions because the company is securing growth engines by making large-scale investments in fields that have undergone long-term research and development.

They expected to convert to common stock and generate profits as the corporate value rises. However, due to the COVID-19 crisis causing a stock market plunge, Sewon Cellontech’s stock price also fell, and institutional investors postponed their exit (investment recovery) timing.

Although the conversion price was adjusted, the difference from the current stock price is not significant. Since hitting the low point in March, Sewon Cellontech’s stock price has risen more than 70% in four months. The closing price on the 20th was 2,750 KRW, 6.3% higher than the conversion price of 2,587 KRW. This price range carries significant risk for initiating conversion requests. If all convertible bond investors request conversion, 15,461,925 new shares will be issued, accounting for 25% of the total issued shares. This is a period when overhang concerns could negatively impact investor sentiment.

Sewon Cellontech recorded consolidated sales of 35.3 billion KRW and operating profit of 1.7 billion KRW in the first quarter of this year. Sales increased by 4.3% and operating profit surged by 371.2% compared to the same period last year. The consolidated debt ratio decreased from 103.1% at the end of last year to 97.1% at the end of the first quarter.

This content was produced with the assistance of AI translation services.