600 Billion KRW Convertible Bonds of L&C Bio with Less Than One Year Until Maturity

Second tranche of CB worth 60 billion KRW matures in May next year
Closing price on 7th at 19,440 KRW... below conversion price of 23,940 KRW

The 2nd tranche of convertible bonds (CB) issued by L&C Bio is less than one year away from maturity. The size of the 2nd tranche CB is around 60 billion KRW, and the current stock price is below the conversion price. Since the maturity is in May next year, a stock price increase is necessary.

According to the Financial Supervisory Service's electronic disclosure system on the 8th, L&C Bio announced on the 30th of last month that the conversion price was lowered from 24,250 KRW to 23,940 KRW. This is the minimum limit.

L&C Bio is a company specializing in human tissue regenerative medicine, established in 2011. It manufactures and sells human tissue grafts, human tissue-based medical devices, cosmetics, and pharmaceuticals.

On June 28, 2022, L&C Bio issued CBs worth 60 billion KRW. The funds were intended for acquiring securities of other companies (40 billion KRW), operating funds (10 billion KRW), and other expenses (10 billion KRW). The nominal and maturity interest rates are 0%. This can be interpreted as an investment aimed at gaining profits by exercising conversion rights rather than earning interest. The conversion request period is from June 29, 2023, to May 29, 2025. The conversion price at issuance was 34,200 KRW. The issuance target was Ascent-Meritz New Technology Finance Union No. 1.

The acquisition of securities of other companies was for acquiring shares of Curexo. In May 2022, L&C Bio invested 40.5 billion KRW in Curexo to secure a 13.33% stake. After about a year, they sold the shares and realized a profit of 60 billion KRW.

Additionally, L&C Bio acquired land in Hwaseong, Gyeonggi Province, for 18.7 billion KRW to build a new headquarters and integrated factory. Along with this, they additionally acquired about 8.6 billion KRW worth of shares in L&C China (L&C Bioscience Technology), raising their stake to 75.1%.

The problem is that the current stock price is below the CB conversion price. The company's stock price has fluctuated since the CB issuance. In May 2022, the stock price rose to as high as 46,700 KRW intraday but dropped to 17,350 KRW in October of the same year. It also rose to 41,700 KRW intraday in July last year. This period was particularly disappointing for CB investors since the conversion price had been adjusted upward from 24,800 KRW to 34,200 KRW at that time.

However, in August this year, the stock price fell to as low as 16,480 KRW intraday, marking the lowest price of the year. On the 7th of this month, the closing price was 19,440 KRW, still below the conversion price of 23,940 KRW.

Especially since the maturity is in May next year, if investors demand redemption, it could become a significant burden. On a consolidated basis, L&C Bio's cash and cash equivalents stood at 8.6 billion KRW in the first half of this year. Additionally, amortized cost financial assets (such as deposits, bonds, etc.) and fair value through profit or loss financial assets (stocks and funds, etc.) were approximately 28.7 billion KRW and 3.3 billion KRW, respectively. On a consolidated basis for the first half of this year, L&C Bio's sales were 34.5 billion KRW, a 10.14% increase compared to the same period last year. Operating profit was 3 billion KRW, a 19.94% decrease over the same period.

However, a positive aspect is that L&C Bio has been included in the 'KRX Korea Value-Up Index.' This index was developed to enhance corporate value, stimulate the stock market, and resolve undervaluation in the market. The securities industry expects that the supply and demand for stocks included in the Value-Up Index will improve.

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