Jeil M&S, a secondary battery equipment corporations, fell into a liquidity crisis a year and a half after listing and fell into arrears on principal and interest of the convertible bonds (CB) issued in Feb. The CBs, which KOSDAQ venture funds and securities firms bought in large amounts, are effectively at risk of being uncollectible.
According to the Financial Supervisory Service's electronic disclosure system on the 2nd, Jeil M&S failed to pay 15.12761 billion won out of 20.665 billion won in CB principal and interest due by the 28th of last month. That includes 13.55 billion won in principal and 1.577 billion won in interest.
Early this year, to raise operating funds, Jeil M&S issued a total of 19 billion won in CBs to funds of Focus Asset Management, A1 Asset Management, and Tiger Asset Management, as well as to Samsung Securities and Shinhan Investment & Securities. With about 1.6 billion won in interest added, the amount due swelled to 20.6 billion won.
The acquisition amounts by asset management company funds were as follows: ▲ A1 Asset Management 3.6 billion won (8 funds) ▲ GVA Asset Management 3 billion won (5 funds) ▲ Tiger Asset Management 1 billion won (2 funds) ▲ Focus Asset Management 500 million won (5 funds). Among securities firms, Samsung Securities and Shinhan Investment & Securities each bought the largest amount at 2 billion won. Among capital companies, JB Woori Capital bought 2 billion won and Shinhan Capital bought 1 billion won.
The problem is Jeil M&S's severe liquidity deterioration. On a consolidation basis in the third quarter this year, the company's current liabilities were 493.6 billion won and current assets were 421.4 billion won, showing a sharp drop in its ability to repay short-term debt. Total equity was minus (-) 41 billion won, meaning it has long been in a state of complete capital impairment.
As this crisis came to light, the creditors in May demanded early redemption of the CBs based on "loss of benefit of time." Loss of benefit of time is a clause that allows a creditor to demand immediate full repayment regardless of the original maturity if corporations fall into financial distress or violate covenants. Jeil M&S agreed with the creditors to buy back the entire CBs before maturity, but by the redemption deadline on the 28th of last month it repaid only 5.5 billion won and failed to pay the remainder.
Converting to stock to reduce losses is also difficult. Jeil M&S triggered a delisting reason in Apr. and its trading has been suspended for eight months. Convertible bonds are typically converted when the share price is higher than the conversion price to realize a gain, but with trading suspended, conversion itself has become meaningless.
A source at a securities firm that acquired the CBs said, "With trading suspended, even if we exercise the conversion right, an exit is impossible," and added, "With the company in a state of complete capital impairment, if senior creditors such as banks take the assets first, it will be difficult for junior CB investors to recover their funds."
To make matters worse, Jeil M&S on this day filed for rehabilitation proceedings with the Suwon Bankruptcy Court. At the same time, it requested a preservation order for company property and a comprehensive prohibition order. Once rehabilitation begins, the collection and enforcement of all claims against the company is suspended.
Meanwhile, Jeil M&S, which entered the KOSDAQ market in Apr. last year on expectations for secondary batteries, recorded a high competition rate of 1,438.96 to 1 in its IPO subscription. The subscription deposit totaled about 9.4971 trillion won, and there were 486,581 subscription cases, drawing market expectations.
Jeil M&S said it plans to respond according to its business normalization plan and schedule.