Recently, KOSDAQ-listed companies have been issuing Convertible Bonds (CB) without the repaying (adjustment of conversion price due to price drops) conditions. CBs without repaying mean that if the stock price falls, the conversion price remains fixed, forcing CB investors to forgo conversion if the stock price drops below the conversion price.
Investing in CBs without repaying conditions means that investors are 'betting' on the expectation that the stock price will rise above the conversion price. The market interprets this atmosphere as confidence in potential stock price increases. Furthermore, from the perspective of existing shareholders, the dilution concerns typically associated with regular CBs are significantly reduced, presenting a favorable outlook.
According to the Financial Supervisory Service's electronic disclosure system on the 26th, KOSDAQ-listed Tego Science announced that it decided to issue CBs worth 27 billion won without repaying conditions. The conversion price is 17,713 won, and upon conversion, 1.52 million shares will be newly issued, accounting for 15.99% of the total shares issued.
The issuance of CBs without repaying conditions by KOSDAQ-listed companies has been consistently ongoing since last year. In April and September of last year, ANIPLUS and Daebong LS issued CBs without repaying conditions, and earlier this year in January, Inventage Lab issued CBs without repaying conditions ahead of Tego Science.
Repaying refers to adjusting the CB conversion price based on the falling stock price of the issuing corporations. It is a mechanism designed to protect CB investors. When a corporation's stock price falls, CB investors can lower the conversion price while simultaneously increasing the number of convertible shares to defend their revenue.
Typically, existing shareholders are not fond of repaying, as an increase in the number of newly convertible shares dilutes their equity. An increase in the volume of new shares leads to a decrease in per-share value, which, combined with the overhang (potential sell-off volume), exerts downward pressure on the stock price.
Regarding the issuance of CBs without repaying conditions, industry insiders interpret this as a signal of confidence in rising corporate stock prices. An industry insider noted, "Investors might feel uneasy without repaying, but they are going into investment because they are confident that the stock price will rise above the conversion price."
In particular, Tego Science's latest CB has attracted attention due to its 'zero-interest' condition, with both nominal and maturity interest rates set at 0%. With no interest income, investors can only rely on capital gains after converting to shares. If the stock price drops below the conversion price, they will only recover the principal, making this CB viewed as a bet on the company's future value.
Thus, CBs without repaying conditions are perceived as a positive development for existing shareholders. In fact, immediately after the announcement, Tego Science's stock price traded at 19,150 won, an increase of 8.5% from the previous trading day (17,640 won). The closing price was up 4.20% at 18,380 won.
Tego Science stated, "Our underwriter, Samsung Securities, judged that our company's stock is undervalued and positively evaluated our financial soundness and ongoing clinical projects," adding, "As a result, the issuance of CBs with somewhat unfavorable conditions for investors was smoothly accomplished."
Experts predict that the number of repaying clauses will gradually decrease. A business professor, who requested anonymity, stated, "The repaying clause is a peculiar investor protection device found only in Korea and Japan," and added that discussions about capital and liability surrounding CBs with repaying conditions are ongoing, suggesting that the number of repaying clauses will continue to decline over time.