CHA Biotech designated Meritz Securities as the exerciser of the put-back right (call option) on the mezzanine issued two years ago to raise funds—hybrid assets between stocks and bonds such as convertible bonds and bonds with warrants. In exchange for handing over the call option right to Meritz Securities, the structure shares a significant portion of any future gains.
With the recent share price rise, both investors and the option exerciser are expected to enter the profit zone, and CHA Biotech has managed to catch two birds with one stone: easing repayment pressure and securing capital gains.
In the industry, there is analysis that Vice Chairman and CEO Choi Seok-yoon likely played a major role in crafting a structure that could yield mutual benefits for CHA Biotech and Meritz Securities. Choi, who served as an adviser to Meritz Securities, was appointed CEO of CHA Biotech last year.
CHA Biotech held a board meeting on Feb. 13, right before the Lunar New Year holiday, and designated Meritz Securities as the exerciser of the call option on 75 billion won worth of mezzanine. The call option covers 10% (4.4 billion won) of 44.5 billion won in redeemable convertible preferred shares (RCPS) issued in May 2024, 12.09% (1.2 billion won) of 10.3 billion won in convertible bonds (CB), and 14.63% (2.9 billion won) of 20 billion won in bonds with warrants (BW). Meritz Securities can now require investors to sell the relevant RCPS, CB, and BW.
In May 2024, CHA Biotech issued these mezzanine securities to acquire additional equity in its subsidiary CHA Healthcare and to secure operating funds. By transferring the call option that came due two years after issuance to Meritz Securities, CHA Biotech was able to ease the burden of additional fundraising.
The mezzanine issued at the time included a clause that, for RCPS, a third party designated by the issuing company (CHA Biotech), and for CB and BW, the issuing company or a person designated by the issuing company (the put-back right holder), could exercise call options within defined limits.
When issued, the conversion price for CB and RCPS and the exercise price for BW were 17,354 won each, but after a steep drop in the share price last year, the company lowered all CB/RCPS conversion prices and the BW exercise price to around 12,000 won. As the share price has since risen, the conversion and exercise prices were readjusted to 16,144 won.
The CB, BW, and RCPS issued then were underwritten by many securities firms, including Korea Investment & Securities Co. and Mirae Asset Securities, but Meritz Securities was not included. However, by designating Meritz Securities as the call option exerciser, CHA Biotech brought Meritz Securities into the "profit community" for the mezzanine. Recently, CHA Biotech's share price topped 20,000 won, and if it rises further, investors can realize gains by converting CB and RCPS and exercising BW.
Regarding this, a CHA Biotech official said, "Among the mezzanine securities issued in 2024, RCPS accounts for the largest portion, and in the case of RCPS, the company cannot exercise the call option directly and must designate a third party," adding, "Including RCPS, CB, and BW, we proceeded with the call option exercise through Meritz Securities, which proposed the best terms."
In return, Meritz Securities agreed to pay CHA Biotech 60% of realized gains after deducting taxes and other various expenses as a "designated consideration" following the call option exercise.
From CHA Biotech's perspective, instead of spending funds to exercise the call option, it both escapes repayment pressure and shares in investment gains from a rising share price.
Inside and outside the company, there is analysis that Vice Chairman Choi Seok-yoon, an expert in investment banking, likely had significant influence. Choi began at JPMorgan and went on to serve at Daewoo Securities' Tokyo and London subsidiaries, followed by Credit Suisse, Barclays, RBS Korea head, and Goldman Sachs Korea co-head.
Afterward, Choi taught at the business school of Seoul National University, his alma mater, then served as head of corporate business at Meritz Fire & Marine Insurance and as an adviser to Meritz Securities. Last year, CHA Bio Group recruited Choi, drawing attention in the capital markets industry.
However, CHA Biotech said, "This decision was made through a board resolution, and it was not judged or led by any specific individual (Vice Chairman Choi Seok-yoon)."