[CB Crisis] ③ Nexti, Early Redemption Demand Following Poor Performance

Losses Continued for 3 Years Since Turning Deficit in 2019
6-Month Delay in Issuing 5th Convertible Bonds
Concerns Over Fundraising Difficulties Due to Conversion Price Higher Than Current Stock Price

[Asia Economy Reporter Hyungsoo Park] Next I is facing continued early redemption requests for its 4th series convertible bonds (CB) issued in November 2020. Although the conversion price was lowered from 1,480 KRW at issuance to 1,036 KRW, the stock price has fallen even faster, leading more investors to demand redemption rather than conversion.

According to the Financial Supervisory Service's electronic disclosure system on the 1st, Next I repaid 2 billion KRW and 1 billion KRW to holders of the 4th series CB on the 7th and 12th of last month, respectively. CBs acquired before maturity are canceled.

Previously, Next I raised 8.6 billion KRW by issuing the 4th series CB in November 2020. Some of its real estate holdings were provided as collateral. The Myeonghak factory in Manan-gu, Anyang-si, and the Yangjae building in Seocho-gu, Seoul, were entrusted to a trust company.

Based on consolidated financial statements, it holds 10 billion KRW in convertible bonds as of the end of Q1. The repayment burden for the 4th and 5th series CBs issued in November 2020 is increasing. The stock price has fallen below the conversion prices, which are 1,036 KRW and 1,348 KRW for the 4th and 5th series CBs, respectively.

Next I holds 37.3 billion KRW in cash and cash equivalents and 14.2 billion KRW in financial assets measured at fair value, including mixed bond funds and pension savings insurance. Although it has been operating at a loss for several years, it maintains a large scale of liquid assets. The debt ratio as of the end of Q1 was 34.86%, slightly improved from 39.09% at the end of last year.

Next I is currently pursuing fundraising by issuing the 6th series CB and the 1st series exchangeable bonds (EB). The payment date is scheduled for the 10th of next month. If the issuance succeeds as planned, it will raise 14.2 billion KRW.

The problem is that during the fundraising process, the stock price has plummeted, causing the conversion and exchange prices to significantly exceed the current stock price. The conversion price for the 6th series CB is 1,401 KRW, about 80% higher than the current stock price. The guaranteed yield at maturity is 4% per annum. Unless the conversion price conditions are adjusted by the payment date or the stock price rises near the conversion price, there may be difficulties in raising funds. The issuance of the 6th series CB was planned to start in January this year but has been repeatedly delayed due to changes in issuance scale and detailed conditions.

Although it holds a relatively substantial amount of liquid funds, the reason for pursuing fundraising is related to several years of continued losses. Next I recorded an operating loss of 1.6 billion KRW in 2019, turning to a loss compared to the previous year. Subsequently, it recorded operating losses of 10.4 billion KRW in 2020 and 11.5 billion KRW in 2021. Sales decreased from 56.1 billion KRW in 2019 to 34.8 billion KRW in 2020 and 28.7 billion KRW in 2021.

Next I develops LCD exterior inspection equipment and operates a cosmetics distribution business. Sales composition is 38.5% from inspection equipment, 26.8% from 3D measuring instruments, and 34.0% from cosmetics. The largest shareholder is Yumido International Beauty Chain Group (Aesthetic International Beauty Chain Group), holding 17.33% (13,572,228 shares).

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