Aerospace corporations Sphere drew market attention by raising 90 billion won in cash using the call option on its convertible bonds (CB). The move is seen as securing large-scale liquidity by strategically exercising the call option during a stock rally.
A CB is a bond with the right to convert into stock. Typically, when the share price rises above the conversion price, investors gain profits through conversion.
According to the Financial Supervisory Service's electronic disclosure system on the 21st, Sphere disclosed that it sold 2.5 billion won in face-value tranches of the fourth CB for about 31.3 billion won the previous day. The conversion price is 3,448 won, the total number of shares upon conversion is 725,000 (1.41%), and the start date for conversion claims was on Mar. 7. The buyers are two U.S. asset management firms, including Brookdale Global Opportunity Fund.
With this transaction, Sphere secured a total of 90 billion won in cash by reselling 7.5 billion won of the fourth CB. Sphere had previously sold CBs to the same manager twice, each time 2.5 billion won by face value, for a total of 58 billion won (about 29 billion won each).
Behind 7.5 billion won worth of bonds selling for 90 billion won is Sphere's surging share price. Sphere's stock has risen more than 300% over the past year as it emerged as an overseas vendor to SpaceX. Meanwhile, the conversion price remains stuck at 3,448 won, leaving a per-share gap of about 40,000 won based on the previous day's close (46,900 won). For investors buying the CB, the ability to convert into stock at a low price creates an incentive to pay a cash premium for that difference.
This transaction was made possible by the "call option" Sphere set when it issued the CB in Dec. 2024. Under the contract, Sphere had the right to buy back up to 50% of the aggregates issued. The company exercised this right when the share price was at the bottom to buy back the CB on the cheap, then resold it at a premium when the stock spiked, effectively channeling the gains straight into the company's coffers.
An accountant familiar with the capital markets said, "If there had been no call option, the CB investor would have pocketed the gains from the stock surge," and noted, "The company first retrieved the CB via the call option and then resold it when the stock rose, taking the premium equivalent to that increase entirely for the company."
The company plans to invest the funds raised from this CB resale to operate a vertically integrated system for aerospace materials and core minerals global supply chain management (GSCM). Specifically, it said the money will be used to purchase special alloy materials to meet demand from U.S. space launch corporations and to fund completion and commissioning-stage operations of a high-pressure acid leach (HPAL) nickel smelter in Indonesia.
However, concerns about an overhang (potential selling volume) among shareholders have grown. That is because if Sphere had continued to hold the CB after exercising the call option, the volume could have effectively been extinguished, but resale has reopened the possibility of it returning to the market.
The number of shares newly eligible for conversion with this 2.5 billion won resale is about 730,000 (1.41% of total shares outstanding). Broadening to the entire fourth CB resale, the reissued convertible shares amount to about 2.19 million (4.3%). Perhaps reflecting some of these concerns, on the 20th, when the CB resale news broke, Sphere's stock fell 14.61% from the previous day.
Earlier, in March last year, Sphere issued 15 billion won of the fourth CB. The coupon rate is 3%, the yield to maturity is 6%, and the conversion price is 3,448 won. The investor is Withwin Investment's Withwin Investment Association No. 78. Half of the issuance was bought back by Sphere through the call option, and the remaining half (7.5 billion won) was held by Withwin Investment and was recently converted into 6.9 billion won worth of shares.