This article was published on April 1, 2025, at 4:53 p.m. on the ChosunBiz MoneyMove site.
Glenwood Credit, a private credit fund that bet 144 billion won on the K-beauty distribution company SILICON2, has found itself in a difficult situation. The share price of SILICON2 started to decline at the same time as the investment, compounded by the Balaan incident, leading to a decrease of over 17% from the investment price.
According to investment banking (IB) industry sources on the 1st, the equity value of Glenwood Credit's stake in SILICON2 has decreased by 17% compared to the decision to invest 144 billion won on the 21st. This amounts to a loss of about 25 billion won. The corporate value, which was assessed at 2.144 trillion won, dropped to 1.7706 trillion won in just one month.
Glenwood Credit previously participated in a third-party allocation capital increase aimed at financing SILICON2's operating funds, becoming a shareholder. It acquired 4,044,344 shares of SILICON2's redeemable convertible preferred stock (RCPS) at 32,695 won per share, with an almost 4% premium compared to the base price of 31,558 won.
However, the timing of the investment was poor. The share price of SILICON2 briefly rose on the 24th, the first trading day after Glenwood Credit's investment was announced on February 21, but quickly turned to decline. As SILICON2's performance in the last fourth quarter fell significantly short of market expectations, its share price dropped over 22% on the 26th.
According to MERITZ Securities, SILICON2's consolidated sales in the last fourth quarter reached 173.6 billion won, up 64% compared to the same period last year; however, sales fell nearly 20 billion won short of market expectations. During the same period, its operating profit was also 26 billion won, falling over 13 billion won below the expected 39.3 billion won.
A source in the securities industry noted, "Glenwood Credit decided the issuance price using the weighted average share price of SILICON2 over the past month and the past week, stating that if the investment timing had been delayed, the equity value wouldn't have dropped by 17%."
The Balaan incident has also become a negative factor. Immediately after receiving funding from Glenwood Credit, SILICON2 invested 7.5 billion won in Balaan. Although SILICON2 described it as an investment for "securing stable management rights and strategic synergy," the market perceived it negatively, causing the share price to fall.
In the meantime, the 7.5 billion won SILICON2 invested in Balaan is at risk of total loss. About a month after SILICON2's investment in Balaan, the sales settlement issue arose on the 24th of last month, and on the 31st, Balaan ultimately filed for corporate rehabilitation. The previous day's share price of SILICON2 had dropped nearly 6%.
The market is assessing that it will not be easy for Glenwood Credit to achieve a so-called exit (investment recovery) jackpot. Although SILICON2's share price, which had fallen nearly 6% the previous day due to the Balaan incident, rose over 10% on the day, it is still 17% lower than Glenwood Credit's investment price.
There are also predictions that SILICON2's performance improvements will not be the same as in the past. This is due to signs of a slowdown in growth in the U.S. market as competition intensifies. The securities industry anticipates that it will inevitably have to increase promotional expense expenditures, leading to reduced profits.
The unfavorable investment structure for Glenwood Credit is also seen as a problem. Glenwood Credit invested with a premium above the base price per share while pursuing a large-scale investment. Additionally, although it is preferred stock, it agreed to receive dividends on par with common stock shareholders without preferential rights regarding profit distributions.
It is reported that Glenwood Credit cannot adjust the conversion price due to the drop in market prices. Instead, they can preserve amounts above the principal. Repayment can be requested starting three years from the date of payment for new share subscriptions, with an internal rate of return (IRR) of 1.0% applied.
A source in the IB industry noted, "As K-beauty gains popularity in the U.S. and Japan, many institutional investors appeared to be interested in participating in SILICON2's capital increase. Glenwood Credit likely expected a rise in share prices when they invested, but it seems to be falling short of expectations at this time."