Alipay, the second-largest shareholder of Kakao Pay, has decided to issue exchangeable bonds (EB) worth 630 billion won, with its equity as the subject of the exchange. This is the second issuance after issuing EB worth 280 billion won last July.
The news that a significant equity is being used for the EB issuance has caused Kakao Pay's stock price to plummet. Once the shares are released into the market after the EB issuance, concerns over an overhang are bound to increase.
On the 3rd, Alipay announced that it would issue overseas EB on October 2, targeting 8.62% (11,648,791 shares) of Kakao Pay stocks. The exchange price is set at 50,401 won per share, which is a 6.5% discount compared to the previous day's closing price. The exchange claim period is from November 12 to December 19, with a maturity date of December 29 for this short-term bond.
Alipay has lent all the corresponding shares to Samsung Securities, and these shares will pass entirely to Goldman Sachs. Goldman Sachs can either short-sell the secured stocks to realize profits during a stock price decline or hedge risks by securing the stocks in advance in case of exercising the exchange rights. Goldman Sachs can gain premium profits from the issuance of exchangeable bonds, and Alipay can obtain the necessary funding.
Alipay also issued EB worth 4,836,681 shares under the same contract structure last July. The maturity date for this EB is November 27, and this contract is interpreted as an extension of the previous contract. The price was set at 59,100 won per share, which is approximately a 12% discount compared to the stock price at that time.
Alipay is accelerating the sale of its equity in Kakao Pay. Previously, Alipay disposed of 3.8% of Kakao Pay's equity in June 2022 and 2.2% last March through off-hours block trades. However, this year, it appears to have changed its funding method to exchangeable bonds.
Even if creditors exchange all the exchangeable bonds for Kakao Pay stocks in the future, Alipay can maintain its status as the second-largest shareholder. Alipay's current equity ratio is 31.9%, and if all the EB from July and October are exchanged, the equity will drop to the 19% range. However, Goldman Sachs' holdings, combined with their existing stocks, total about 15%, which is less than Alipay's equity.
There are also analyses suggesting that the major EB issuance by the largest shareholder has increased the burden of the overhang (potential selling volume). Kakao Pay's stock price increased to 93,800 won at the end of June due to expectations for the stablecoin business, but it dropped 38% to 57,800 won the previous day. On that day, the investment sentiment further deteriorated, with the stock trading at 52,000 won, down 10% from the previous trading day as of 11 a.m.
Lim Hee-yeon, an analyst at Shinhan Investment Corp., noted, "The repeated equity cash-outs by the second-largest shareholder will be a factor that slows down the re-rating speed during future stock price rebound phases." Shinhan Investment Corp. downgraded its investment opinion on Kakao Pay to 'neutral' last July.