As the stock market declines due to the impact of U.S. tariff policy, the conversion prices of the convertible bonds (CB) issued by listed companies continue to fall. When conversion prices drop, the number of shares that can be converted into stocks increases, raising concerns about oversupply (potential selling pressure). For individual investors in these listed companies, this is a double whammy. Some listed companies have seen their conversion prices fall to the lowest limit, increasing the financial burden from early redemption claims (put options).
According to the Financial Supervisory Service's electronic disclosure system on the 13th, HLB Life Science lowered the CB conversion price from 10,713 won to 7,500 won on the 10th. The company's stock price has fallen 12.4% since the U.S. tariff issue intensified on the 3rd of this month, and yesterday, on the adjustment date for the conversion price, it was recalibrated to reflect the recent stock price decline. This amount is the lowest that the company can set, and as the price has decreased, the number of convertible shares has increased from about 460,000 to 660,000.
A convertible bond (CB) refers to a bond that can be converted into stock. If the stock price rises significantly during the holding period, the investor can exchange this bond for shares at the promised conversion price and realize a capital gain. However, if the stock price is poor, the investor may choose not to convert the bond into shares and hold it until maturity, receiving the principal and interest.
Recently, the KOSDAQ stock price has been sluggish due to the impact of U.S. tariffs, causing the CB conversion prices issued by listed companies to approach the minimum limit (usually 70% of the initial conversion price).
In addition to HLB Life Science, XCURE, Sonid, HLB Therapeutics, Nano Chem Tech, Cellumed, and Haesung Optics have also lowered their conversion prices based on their recent stock prices this month. The conversion prices of Billions, FNC Entertainment, and JETEMA have dropped near the minimum limit this month. On this day, the KOSDAQ index recorded 695, down 11% compared to the peak in February.
Listed companies are facing growing concerns as the prolonged market slump approaches the put option exercise period. Many companies that issued CBs are low in financial soundness and are KOSDAQ-listed. If the stock prices continue to decline and fall below the minimum conversion price, bondholders are likely to abandon share conversion and exercise their put options to secure cash. If investors exercise their put options, the companies will have to return the invested funds, inevitably worsening their financial conditions.
Individual investors are also suffering significant losses. When a company lowers the conversion price, CB investors can exchange their bonds for a greater number of shares. If bondholders issue shares at a low price and dump a large volume of stock, the burden of falling stock prices will fall back on investors. The increase in the number of shares also dilutes existing shareholders' equity, adding to the significant burden.
Concerns regarding downward adjustments of CB conversion prices are expected to continue. Convertible bonds worth approximately 11 trillion won have been issued in 2022 (6 trillion won) and 2023 (5.6 trillion won) and are approaching the period for conversion price adjustments and put option claims.
An official from the financial investment industry noted, "Given the volatility of the KOSDAQ market, various uncertainty factors, including the remaining tariff risks, could impose greater shocks to the stock market. Particularly, if the downward trend in stock prices continues, the oversupply burden of CBs may become apparent, so investments in individual stocks should be approached more cautiously."