'Funding Embarrassment'... Mid-sized Group Raises Only 2.4 Billion Won Out of 30 Billion Won BW Issuance

Issued BW with 3% Interest Rate for Debt Repayment
Underwriters Subscribed 27.6 Billion KRW...8% Forfeiture Fee

Daeyu Plus, which produces steering wheels and aluminum wheels, has issued new shares with warrants (BW) through a public offering to raise funds for debt repayment and facility investments. However, the participation rate of general investors was low, possibly because the coupon rate was not considered high relative to the credit rating. The lead manager, Korea Investment & Securities, and the underwriter, SK Securities, will acquire the unsubscribed portion through a residual subscription method. Daeyu Plus will have to pay tens of billions of won in fees for the unsubscribed shares.

According to the Financial Supervisory Service on the 11th, Korea Investment & Securities and SK Securities acquired BWs worth 16.2 billion won and 11.4 billion won, respectively. Daeyu Plus agreed to pay an 8.0% fee on the unsubscribed amount acquired by Korea Investment & Securities and SK Securities. Due to a general subscription competition rate of 8.1%, more than 2 billion won was paid as unsubscribed fees.

Earlier, on the 13th of last month, Daeyu Plus held a board meeting and resolved to issue BWs worth 30 billion won. The plan was to use 20 billion won for debt repayment, and 4 billion won and 6 billion won for facility and operating funds, respectively. Korea Ratings and NICE Credit Rating evaluated the credit rating as 'BB0'.

Song Young-jin, a senior researcher at NICE Credit Rating, explained, "We considered the deterioration of financial stability due to support for Daeyu Group affiliates and the potential burden of support for subsidiaries," adding, "As of the end of last year, consolidated total borrowings amounted to 257.9 billion won, increasing the borrowing burden for support to affiliates."

Daeyu Plus is the intermediate holding company of the Daeyu Group. Cash outflows have occurred due to ongoing support for affiliates. Between 2020 and 2021, it acquired corporate bonds worth 39.9 billion won for funding support to Winia Holdings. Last year, it settled 22.9 billion won in shares of its affiliate Winia Electronics America through debt settlement, resulting in a disposal loss of 19.6 billion won. Loans for affiliate support were converted into debt settlement or equity investments in affiliates with poor performance or low financial stability. Daeyu Plus's debt ratio worsened from 291.3% in 2020 to 371.3% in the first quarter of this year.

NICE Credit Rating assessed that the credit rating could further deteriorate due to continued affiliate support. Senior researcher Song analyzed, "Since Daeyu Group acquired Winia Electronics (formerly Daewoo Electronics) in 2018, group-level financial support has continued," adding, "There is a possibility of additional support."

Daeyu Plus and Korea Investment & Securities proposed issuance conditions based on the credit rating, with a coupon rate of 3.0% and a warrant exercise price of 1,079 won. Given the possibility of further credit rating downgrades, the 3% interest rate did not serve as an incentive for investment. Opinions differed regarding the clause allowing the exercise price to be adjusted downward by up to 30% from the base price of 1,079 won when subscribing to new shares. Daeyu Plus's stock price has trended upward this year. It fell to 691 won at the beginning of the year but rose more than 90% to 1,329 won on the 22nd of last month. Recently, profit-taking sales have pushed the stock price below 1,000 won.

If the exercise price is adjusted due to the stock price decline, it can be lowered to a maximum of 755 won. The warrants must be exercised between the 10th of next month and June 10, 2027. The early redemption right can be exercised from January 10, 2025. For the next 18 months, interest can be received while potentially generating additional profits through warrant exercise.

A financial investment industry official explained, "If the general subscription is not absorbed, the burden of unsubscribed fees paid to the underwriters is significant," adding, "The funding environment is worse compared to the past when mezzanine bonds were issued at zero (0) interest rates." He further noted, "Considering that funds are flowing into the initial public offering (IPO) market, the concentration of funds is severe."

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