KCC will issue exchangeable bonds (EBs) worth about 400 billion won based on its treasury shares. As pressure mounted, led by the ruling party, to mandate the retirement of treasury shares, the move is seen as a preemptive response. Market participants who had expected a retirement are showing clear disappointment.
According to the Financial Supervisory Service's electronic disclosure system on the 24th, KCC is preparing to issue EBs worth 430 billion won based on its treasury shares. It selected Samsung Securities as the lead manager. The exchange price will carry a 15% premium to the market price. The exchange target is 9.9% of KCC's treasury shares.
The EB issuance is scheduled for the fourth quarter of this year. An EB is a bond issued based on a corporation's treasury shares or another company's shares, with a right attached that allows investors to exchange the bond for the relevant shares instead of receiving principal and interest. If the price of the exchange target shares rises, additional returns can be expected.
As market participants had expected KCC to retire its treasury shares, the stock is plunging. Some say that since the EB underwriters can sell the shares later, it is effectively no different from a block deal (after-hours bulk trade). As of 9:55 a.m. that day, KCC was down more than 13% from the previous trading day at 362,000 won.
KCC holds 17.24% of its total equity as treasury shares. Of this, 9.9% will be used for the EB issuance, 3.9% will be retired, and 3.4% will be granted to the in-house employee welfare fund. A KCC official said, "The plan to use treasury shares is intended to balance profit returns and strengthening corporate competitiveness to evenly promote the interests of all stakeholders."
With the Democratic Party of Korea and the government nearing passage of a bill mandating the retirement of treasury shares, corporations are raising funds using EBs. Unlike convertible bonds (CBs), EBs have the advantage that once an exchange is requested, it is executed immediately, making cashing out easy. Recently, including KCC, many companies listed on the KOSPI and KOSDAQ have used them as a funding tool.
KCC also issued EBs in Jul. based on 2,054,614 shares of HD Korea Shipbuilding & Offshore Engineering it held. The exchange price was 429,650 won per share, totaling 882.765 billion won. KCC used the funds to participate in a paid-in capital increase by its overseas subsidiary MOM Holdings.
Founded in 1958, KCC is a comprehensive precision chemical corporation that produces construction materials, paints, silicones, and advanced materials. KCC began in 1958 as Geumgang Slate Industry Co., Ltd. and grew based on the construction materials business. It expanded into paints and materials, and now is a corporation with technological capabilities in new materials such as organic materials for semiconductors.