Lake Materials, a KOSDAQ-listed company that produces semiconductor, solar, LED, and display materials, issued 50 billion won in convertible bonds (CB) to major securities firms and asset managers including Mirae Asset Securities, KB Securities, Shinhan Investment Securities, and Kiwoom Securities. The funds will be used for semiconductor facility expansion and to support the solid-state battery business being pursued by its subsidiary.
In particular, this CB was issued on terms highly favorable to the company. With no conversion price adjustment (refixing) clause for share price declines, both the coupon and maturity interest rates are 0%. Analysts said securities firms and asset managers that took the CB tranche invested in the company's growth potential.
Lake Materials said it decided at a board meeting on the 13th to issue 50 billion won in CBs to raise facility and operating funds. Subscribed by multiple financial firms, the CBs can be converted into shares starting May 21 next year. If the entire tranche is converted into shares, about 2.09 million shares (3.09%) will be newly issued. The conversion price was set at 23,839 won, 10% higher than the reference date share price.
The most notable aspect of this issuance is the overwhelmingly favorable terms for the issuer. The refixing (conversion price adjustment) clause based on market price declines was entirely excluded, and both the coupon and maturity interest rates are 0%. Investors effectively bet solely on future share price gains, even forgoing interest income.
The company plans to invest 10 billion won of the funds raised to expand semiconductor and catalyst facilities, and will also use them to support facility and operating funds for its subsidiary, Lake Technology. The company established Lake Technology in 2020 and succeeded in developing lithium sulfide (Li2S), a key material for solid-state batteries, and two years ago built pilot production facilities with an annual capacity of 120 tons.
Lake Materials, which first localized TMA (trimethylaluminum), a basic raw material needed for LED production, expanded its business into semiconductors, petrochemicals, and solar cells, and supplies products to Samsung Electronics and SK hynix. In 2019, semiconductor materials accounted for only 26% of total sales, but last year that share rose to around 70%.
However, due to the slump in some downstream industries such as LED and solar, profit size has shrunk. The operating margin, which was 25% in 2023, plunged to 9% last year, significantly squeezing profitability.
The company plans to expand its semiconductor materials business while positioning the solid-state sector as a new growth engine. It aims to build a mass-production line for lithium sulfide with a capacity of 1,000 tons before 2030, when the solid-state battery market is expected to fully blossom.
Joo Min-woo, an analyst at NH Investment & Securities, said, "A stable cash flow is continuing through sales of organometallic compounds to downstream sectors such as semiconductors and solar, and a new lithium sulfide business is being prepared," adding, "As Samsung SDI is expected to invest in a solid-state mass-production line this year, whether Lake Materials will be incorporated into that supply chain is key." The analyst cited ISU Specialty Chemical as a competitor to Lake Materials.