[After CB Issuance] ⑤ Daebo Magnetic, CB Financing as a Stepping Stone for Secondary Battery Materials

Expansion of Business Area from 2nd Battery Equipment to Materials
Funds Raised through CB Issuance... Secured 10,000-Pyeong New Factory Site and Facility Investment
Stock Price Exceeds Conversion Price... 60% Investment Return Expected in One Year

[Asia Economy Reporter Hyungsoo Park] Daebo Magnetic, a developer of electromagnetic iron removers (EMF), is expanding its business scope from secondary battery equipment to materials. As the electric vehicle market grows, demand for secondary battery materials is also increasing, which is expected to help improve Daebo Magnetic's performance. J& Magnet Startup Venture Specialized Private Equity Fund (PEF), which invested in Daebo Magnetic's convertible bonds (CB) last year, has found an opportunity to partially exit its investment within a year.

According to the Financial Supervisory Service on the 28th, an investor holding Daebo Magnetic's first series convertible bonds will exercise conversion rights worth approximately 5 billion KRW. The conversion price is 19,901 KRW, and about 250,000 new shares will be listed on the stock market on the 3rd of next month. Daebo Magnetic's current stock price is around 33,000 KRW, resulting in an estimated return of over 60%.

Previously, Daebo Magnetic issued convertible bonds worth 10 billion KRW and 14 billion KRW on July 5 and 31 last year, respectively. J& Magnet Startup Venture Specialized PEF acquired all of these convertible bonds. The conversion prices for the first and second series were 19,901 KRW and 24,189 KRW, respectively.

Daebo Magnetic stated that all funds raised from the convertible bond issuance would be used to enter new businesses related to secondary batteries.

The EMF, which Daebo Magnetic primarily produces, plays a role in removing trace amounts of iron contained in cathode materials, one of the causes of ignition in lithium secondary batteries. EMF comes in two types: dry type, which removes iron from powder-form materials, and wet type, which removes iron from slurry-form materials.

Daebo Magnetic is the only company in the world producing wet-type EMF. Wet-type EMF is equipment used by secondary battery manufacturers to remove iron from slurry-form materials after mixing lithium, nickel, and cobalt, rather than powder-form lithium. Wet-type EMF filters iron once again from slurry-form materials after the dry-type EMF has removed iron from the materials.

By placing both dry-type and wet-type EMFs in the preceding and subsequent processes to remove iron twice, high-quality materials can be secured. Major lithium secondary battery manufacturers such as LG Chem and Samsung SDI are adding wet-type EMFs to their processes. Other companies are also following the trend of installing wet-type EMFs additionally.

Recognized for its technological prowess in the secondary battery equipment field, Daebo Magnetic is expanding its business into secondary battery material subcontracting. On the 24th, it announced the acquisition of land measuring 10,000 pyeong to expand its secondary battery material subcontracting business. The company plans to complete the new factory by the end of this year and finish equipment investment in the first quarter of next year. Researcher Kim Junghwan of Korea Investment & Securities introduced, "The new factory will mainly focus on the subcontracting business for lithium hydroxide used in high-nickel cathode materials," adding, "Demand for NCM811 cathode materials with nickel content over 80% is rapidly increasing from this year, leading to growing demand for high-quality lithium hydroxide that synthesizes well with nickel."

Daebo Magnetic receives lithium from mining companies and supplies materials that have undergone crushing, drying, and iron removal processes to domestic secondary battery material companies. By the end of last year, it completed investment in processing facilities with an annual capacity of 3,000 tons and is conducting quality tests with multiple material companies. By the end of next year, the new factory will secure an annual processing capacity of 10,000 tons of lithium hydroxide.

As the secondary battery market expands, Daebo Magnetic's sales increased from 13.1 billion KRW in 2017 to 23.9 billion KRW last year. With material sales added from next year, the sales growth rate is expected to accelerate further.

During the sharp decline in the domestic stock market last March due to the COVID-19 pandemic, Daebo Magnetic's stock price fell to 15,000 KRW. However, as Daebo Magnetic actively pursued its materials business, the stock price more than doubled within four months.

With the stock price recovering rapidly, Daebo Magnetic's stock price now exceeds the conversion price of the convertible bonds held by J& Magnet Startup Venture Specialized PEF. However, if J& Magnet Startup Venture Specialized PEF exercises all conversion rights at once, concerns about overhang (potential pending sell orders) could increase. Therefore, J& Private Equity, the fund manager of J& Magnet Startup Venture Specialized PEF, appears to have initially converted only 5 billion KRW.

Daebo Magnetic's largest shareholder is CEO Lee Junggan. As of the end of the first quarter, Lee and related parties hold 68.7% (4,543,440 shares) of Daebo Magnetic's shares. Considering that the average daily trading volume is less than 400,000 shares, the addition of 250,000 shares from the conversion rights exercise could have a positive effect on trading liquidity, which J& Private Equity likely considered when planning its exit strategy.

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