[CB Crisis]⑫ Prostemix Issues CB to Block CB Put Option 'Circular Financing'

Issued 2nd Round CB 2 Years Ago to Raise M&A Funds
Sales Increased but Profitability Improvement Insufficient
Put Option Exercises Continue Due to Stock Price Decline

[Asia Economy Reporter Hyungsoo Park] Prostemics, a KOSDAQ-listed company, is experiencing continued exercises of early redemption rights (put options) on convertible bonds (CB) issued two years ago. Due to interest rate hikes and sluggish stock markets, the financial conditions of domestic listed companies are deteriorating.

According to the Financial Supervisory Service's electronic disclosure system on the 26th, Prostemics repaid 5 billion KRW of its 2nd series CB on the 17th. As bondholders exercised put options, Prostemics issued the 6th series CB to raise funds for repayment. The remaining balance of the 2nd series CB is 13.8 billion KRW, and the current stock price is below the conversion price. Since the interest rate is also 0%, there is a high possibility that bondholders will exercise put options further.

Previously, in August 2020, Prostemics issued the 2nd series CB to domestic institutional investors to raise 20 billion KRW for acquiring securities of other companies. It acquired 100% of the shares of OTCNT, a cosmetics manufacturing and wholesale/retail company, for 17 billion KRW. It was expected to increase sales and improve financial stability. OTCNT recorded sales of 24.6 billion KRW and net profit of 1.8 billion KRW in 2019. Prostemics, which had recorded net losses for several years, merged with OTCNT.

Prostemics recorded sales of 20.7 billion KRW in 2020, a 190% increase from the previous year. Operating loss was 1.2 billion KRW, reducing the deficit compared to the previous year. The merger effect with OTCNT continued in 2021. Sales increased by more than 50% year-on-year to 32.5 billion KRW. Growth was driven by increased sales in the lifestyle health business division. In addition to existing wet tissue products, sales increased by launching various functional products such as disinfectant tissues for hospitals certified by the Ministry of Food and Drug Safety, cleansing tissues, and bidet tissues. Profitability, however, did not improve much. Selling and administrative expenses increased due to commission fees, regular R&D expenses, and bad debt amortization, resulting in an operating loss of 5.3 billion KRW.

The debt ratio rose from 180% at the end of 2020 to 281% at the end of last year. The expected effect of strengthening financial soundness was slow to appear, and combined with the sluggish domestic stock market, Prostemics' stock price declined. This year, the stock price has fallen by more than 50%. Considering the KOSDAQ index's decline of 33% during the same period, the return was poor compared to the market.

As the stock price fell below the 2nd series CB conversion price of 2,737 KRW, bondholders began exercising put options. Prostemics, which has been in a deficit for several years, issued CBs to raise funds for debt repayment. The problem is that the issuance conditions have worsened compared to two years ago. Unlike the zero interest rate two years ago, the 6th series CB has a coupon rate and maturity interest rate of 2% and 5%, respectively. The conversion price dropped to 1,167 KRW. With an increased number of convertible shares, concerns over shareholder value dilution have grown. The 6th series CB was acquired by SangSangin Savings Bank and SangSangin Plus Savings Bank, each purchasing 3 billion KRW.

This year, Prostemics recorded sales of 13.5 billion KRW and an operating loss of 3.9 billion KRW in the first half. Sales decreased by about 15% compared to the same period last year. The debt ratio rose to 434%.

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