This article was published on July 24, 2025, at 5:03 p.m. on the ChosunBiz MoneyMove site.
Dominus Investment, a private equity fund (PEF) management company, is considering when to recover its investment in the convertible bonds (CB) of Lotte Tour Development. From next month, early redemption of the investment will be possible, but there is a strong possibility they will aim for capital gains through stock conversion before maturity.
Lotte Tour Development is expected to return to profitability in terms of net income as early as the second quarter and no later than the third quarter, thanks to the influx of Chinese tourists. Currently, Lotte Tour Development is only generating operating profit due to interest burdens from liabilities. Due to expectations of improved performance, securities firms are increasingly raising their target prices.
According to investment banking (IB) industry sources on the 24th, the deadline for exercising the early redemption right (put option) on the 8-1 tranche of convertible bonds held by Dominus is next month on the 29th. This CB offers a condition for securing a compounded annual yield of 4.5%. The put option deadline was extended from November 29, 2024, to August 29 of this year.
Some are concerned that Dominus may convert the CB into common stock and sell it immediately. Although the maturity of the CB is November 29, the conversion into common stock is already possible. However, it is reported that Dominus plans to monitor stock trends until maturity in November rather than proceed with the conversion into common stock. Internally, Dominus is said to have a positive outlook on the domestic stock market in the second half, not just for Lotte Tour Development.
The significant amount of CB held by Dominus is also seen as an incentive to wait longer for stock price increases. If all the held CB is converted into common stock, it would total 5,485,033 shares, accounting for 7.11% of all shares. While the CB conversion price is 12,762 won, considering the potential for stock price declines after the public announcement of the conversion into common stock, it is observed that it may be a bit early to exercise the conversion rights. As of this day, the stock price of Lotte Tour Development is 17,280 won.
If the conversion rights are exercised, they must be disclosed within five business days. It is impossible to sell all stocks before the disclosure immediately after exercising the rights, as it takes about two weeks for the converted shares to be deposited. Therefore, for the management company to make a profit, the stock price must be sufficiently higher than the conversion price.
An IB industry official noted, "Simply looking at the conversion price and stock price, it is indeed a situation where exercising the (conversion rights) is possible," adding, "However, the target stock price that the management company has in mind is higher, and considering the potential drop in stock price due to the exercise of the conversion rights, they may choose to wait further."
The company's financial structure is expected to improve after converting to common stock. The CB is recorded as a liability on the balance sheet, so the debt ratio will decrease upon conversion to common stock. As of the first quarter of this year, Lotte Tour Development's debt ratio is 639.3%, but when the CB is repaid, it will drop to 612%. If all CBs are converted to common stock, the debt ratio will fall to 559%.
Recently, securities firms have been raising Lotte Tour Development's target prices one after another. This is due to the expectation of improved performance as Chinese tourists return. Starting from the report by DS Investment & Securities on the 25th of last month, which raised the target price to 23,000 won, Hanwha Investment & Securities (24,000 won), Hana Financial Investment (21,000 won), Daishin Securities (22,000 won), and Yuanta Securities Korea and Eugene Securities (23,000 won) have all increased their target prices.
Lee Hyun-ji, a researcher at Eugene Securities, explained, "The expansion of inbound tourism from Chinese tourists will drive performance in the second half," adding, "Although the exercise of CB conversion claims is occurring, even considering the remaining conversion amount, there is more than a 30% increase potential from the current stock price."
Park Soo-young, a researcher at Hanwha Investment & Securities, stated, "As the stock price rises, some of the held CB are being converted gradually, but the expectation for improved net income due to reduced interest burden outweighs concerns about dilution from the increase in circulating volume."