CodeNature Faces Cash Depletion Due to Poor Performance... Consecutive M&A via CB① [Companies at a Crossroads]

[Asia Economy Reporter Jang Hyowon] Kodenature, a KOSDAQ-listed company, is acquiring multiple companies through successive convertible bond (CB) issuances. Since the acquisitions are made almost entirely through CBs without cash payments, there is a high possibility that overhang (potential pending supply) risks will become prominent in the future.

According to the Financial Supervisory Service's electronic disclosure on the 22nd, Kodenature announced on the 18th that it will acquire 100% of the shares of Huneus ENG, a manufacturer of electric vehicle bearing cages, for 6 billion KRW. This amount corresponds to 25% of its equity capital.

Kodenature will pay 300 million KRW in cash and issue the 18th series CB worth 5.7 billion KRW as substitute payment. The 18th series CB has a nominal interest rate of 0%, a maturity interest rate of 4%, and a conversion price of 1,474 KRW. It can be converted into 3,867,028 shares starting from August 26 next year. This represents 9.1% of the total shares outstanding. There is no re-fixing clause.

Huneus ENG recorded sales of 8 billion KRW and a net loss of 1.8 billion KRW last year. Until the first half of this year, it posted sales of 2.9 billion KRW and a net profit of 300 million KRW. The previous owner of this company is Huneus Holdings, a company belonging to the family of Chairman Lee Young-hoon of Huneus (now Wonik Cube), a former KOSDAQ-listed company. After selling Huneus, Chairman Lee also established Huneus Entertainment and is the father-in-law of singer Kim Hyun-chul. The shareholders of Huneus Holdings are Chairman Lee’s children.

Kodenature stated that it acquired Huneus ENG to enter new businesses and diversify. Kodenature operates in renewable energy EPC (engineering, procurement, and construction), cosmetics, and health functional food distribution businesses. It is completely unrelated to electric vehicles or similar industries.

There is another company acquired through CB issuance. On June 30, Kodenature acquired K-Wave, a manufacturer of melt-blown (MB) filters, from Sky E&M for 7 billion KRW. The acquisition funds came from the issuance of the 17th series CB.

Ten days before acquiring K-Wave, on June 21, Kodenature issued CBs worth 7 billion KRW to Sky E&M. The nominal interest rate is 0%, the maturity interest rate is 2%, and the conversion price is 1,935 KRW. When converted into shares in the future, 3,617,571 new shares will be issued. This corresponds to 8.57% of the total shares outstanding.

The reason Kodenature is making offset acquisitions through CB issuance is that the company’s cash is drying up due to poor performance. As of the end of the first half of this year, Kodenature recorded consolidated sales of 13.4 billion KRW and an operating loss of 6.8 billion KRW. Sales decreased by 13.9% compared to the same period last year, and operating losses expanded by 215.9%. The net loss was 8.6 billion KRW.

Kodenature holds about 2.5 billion KRW in cash, including cash equivalents of its subsidiaries. Although its largest shareholder, iSolutions, injected 9.2 billion KRW through a paid-in capital increase as of May 10, most of it was consumed due to losses in the second quarter.

With such large-scale CB issuances, concerns are raised about future financial burdens and overhang issues. The conversion prices of the currently issued 6 billion KRW and 7 billion KRW CBs are 1,474 KRW and 1,935 KRW, respectively. If the stock price does not exceed these levels by the time the early redemption right (put option) can be exercised about 18 months later, redemption requests may be made. Kodenature would then need to prepare 13 billion KRW in cash plus interest.

If the stock price is higher than the conversion price, overhang issues may arise. If all these CBs are converted into shares, 7,484,599 new shares will be released into the market. This corresponds to 17.67% of the current total shares outstanding.

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