[Funding] Why Sejong Telecom Issues EB Split into 31 Parts Targeting Eugene Securities Shares

Raised 35 Billion Won Operating Funds in Exchange for 9.77% Stake
Controversy Over Potential Hostile M&A

[Asia Economy Reporter Jang Hyowon] Sejong Telecom, which holds 270 billion KRW in cash assets alone, is issuing exchangeable bonds (EB) worth 35 billion KRW. The exchange target is Eugene Investment & Securities, and the exchange price is higher than the current stock price. This indicates that the 31 investor funds believe that Eugene Investment & Securities' stock price will rise in the future.

Last year, Eugene Investment & Securities' stock price rose amid concerns about a hostile M&A by Sejong Telecom. However, if the EB is exchanged and the shares are dispersed, the hostile M&A issue will disappear, and the stock price is likely to fall. Despite this, attention is focused on why the funds acquired EB with an exchange price higher than the current stock price.

If all the EB is exchanged, most of the Eugene Investment & Securities shares held by Sejong Telecom will be transferred to bondholders. Sejong Telecom will no longer need to disclose holdings of 5% or more in Eugene Investment & Securities.

According to the Financial Supervisory Service's electronic disclosure on the 28th, Sejong Telecom announced the day before that it will issue 35 billion KRW worth of anonymous private exchangeable bonds. The issuers are 31 funds, asset management companies, and investment associations.

The coupon and maturity interest rate of this EB is 0%. It is interpreted that investors invested expecting to acquire the exchange target stocks in the future.

The exchange target is 9,464,575 registered common shares (9.77%) of Eugene Investment & Securities. The exchange price is 3,698 KRW, about 13% higher than the current price of 3,265 KRW. The exchange request period is from May 9, 2022, to March 29, 2027. If Eugene Investment & Securities' stock price exceeds the exchange price during this period, investors are expected to exercise the exchange rights.

Previously, Sejong Telecom was listed in disclosures after acquiring more than 5% of Eugene Investment & Securities' shares in April 2020. The acquisition price at that time was in the 1,900 KRW range. Subsequently, Sejong Telecom continued to acquire shares until around May last year when Eugene Investment & Securities' stock price reached about 4,800 KRW, securing up to 12%.

At that time, the market raised the possibility of a hostile merger and acquisition (M&A). The largest shareholders of Eugene Investment & Securities are Eugene Corporation and CEO Yoo Changsoo, holding a total of 29.97% as of the end of last year. Considering Eugene Investment & Securities' market capitalization is in the 300 billion KRW range, the share value is about 100 billion KRW.

From Sejong Telecom's perspective, which already held more than 10%, an additional investment of about 60 to 70 billion KRW could allow it to surpass the largest shareholder's stake. As of the end of last year, Sejong Telecom held 17 billion KRW in cash and 250 billion KRW in short-term financial assets.

Also, Chairman Kim Hyungjin of Sejong Telecom has experience managing Sejong Securities after acquiring Dong-A Securities, the predecessor of NH Investment & Securities, which fueled speculation about a hostile M&A. Chairman Kim is known to have secured management rights of Dong-A Securities during the IMF crisis and sold it to the National Agricultural Cooperative Federation around 2005 for a profit.

However, at that time, Sejong Telecom drew a line regarding hostile M&A. They claimed the shares were acquired for simple investment purposes, judging that Eugene Investment & Securities' stock was undervalued. Accordingly, the stock price, which rose to the 5,000 KRW range on hostile M&A expectations, declined continuously for about a year.

Therefore, the market is focusing on the fact that the exchange price is higher than the current stock price. If this EB is exchanged, Sejong Telecom's hostile M&A issue will disappear, and Eugene Investment & Securities' stock price is likely to decline as it has over the past year.

Nevertheless, the reason for setting the exchange price higher than the current price and the interest rate at 0% is analyzed as a strategic move for 'share splitting.' In this case, Sejong Telecom can accumulate Eugene Investment & Securities' shares while avoiding disclosure of shareholdings and can also use the funds that acquired the EB as allies in the future.

A Sejong Telecom official stated, "The purpose of this EB issuance is to secure operating funds as disclosed."

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