As the political theme stocks sweep through the stock market and related items surge, the convertible bonds (CBs) for these stocks are being converted into shares one after another. Investors who purchased the convertible bonds earlier have gained substantial price differences, but the burden on existing shareholders is expected to grow as the converted shares are newly listed. Caution is required for individual investors.
DreamB, which has been selected as a theme stock due to low birth rate policies, announced that the conversion rights for the first batch of convertible bonds were exercised on the 17th and 18th. This was issued last year, and the bondholders decided to convert as soon as the conversion period arrived this month.
New shares are set to be issued on the 9th of next month, and the large volume is expected to increase short-term stock volatility. The conversion price to exchange for shares is 7,944 won, which is 34% lower than the closing price on the 18th (12,210 won). The number of common shares to be released into the market is 1.24 million, accounting for 10% of the total shares issued.
DreamB, a baby products company, capitalized on the expectations of a low birth rate policy ahead of the early presidential election in June. On the 3rd, its stock price, which was 7,990 won, rose to the 10,000 won level in just one day. Since then, it has recorded price limits for two consecutive trading days, and its stock price has skyrocketed about twofold to the mid-13,000 won range this month.
Recently, stocks that surged in relation to the presidential candidates are also revealing plans to exercise conversion rights for convertible bonds. Ice-cream Edu, linked to Prime Minister Han Duck-soo, and Erkos, identified as related to candidate Lee Jae-myung, have also announced plans to convert their convertible bonds into common stocks this month.
Similar to DreamB, both corporations are expected to release a large amount of convertible bonds for sale next month, raising concerns about stock price declines ahead of the election. Previously, Erkos publicly stated that it has no business related to this candidate.
On the 18th, new shares were listed for Hyungji Global, known as a 'Lee Jae-myung theme stock.' This was due to the conversion of the 4th to 6th rounds of convertible bonds previously issued by Hyungji Global into common stocks. About 2 million common shares were newly listed, representing approximately 30% of the total shares issued. The conversion price ranged from 3,172 to 3,925 won, which is only about half of the closing price on the 18th (7,710 won).
It is estimated that this volume was absorbed in the market on the 16th when rights-based short selling (selling two trading days before the listing date) was possible. On the 16th, Hyungji Global's stock price plummeted by 22.67%. After this convertible bond conversion, about 1.5 million shares can still be converted, meaning the selling burden is expected to continue.
On the same day, Xperix, classified as a related stock to candidate Lee Jae-myung's Furiosa AI, also announced that 450,000 shares of convertible bonds will be converted into common stocks next month. The conversion price is 2,467 won, which is less than half of the then-closing price (5,500 won).
At the same time, this corporation also announced the exercise of stock rights. As the stock price surged, convertible bond investors opted to acquire new shares at 3,984 won, which is 27.6% lower than the current stock price. The expected listing date is set for the 16th of next month, and 830,000 common shares are set to flow into the market. Additionally, there are about 4 million shares (16 billion won) of unexercised convertible bonds.
Investors in Sangji Construction's convertible bonds, which soared 14 times due to political themes, were naturally not going to stay put either. They announced after the market closed on the 18th that they exercised conversion rights for 2.3 million shares. This volume accounts for 57.7% of the total shares issued, and it is expected to be difficult to avoid stock price declines due to large selling volumes. The conversion price is 5,000 won, which is 86.9% lower than the closing price on the same day (30,850 won).
As political theme stocks gain attention and stock prices surge in a short period, convertible bond investors are quickly realizing profits. When the stock price rises, the conversion price must be adjusted upward. Typically, the conversion price is adjusted every six months, and there appears to be an attempt to maximize profits by converting convertible bonds at a lower conversion price before this cycle returns. Naturally, there is also the intention to sell quickly before the election.
Nam Gil-nam, a senior researcher at the Capital Market Research Institute, noted, "The phenomenon of political theme stocks boosting stock prices based on vague relationships with influential candidates is repeating every five years. Based on past cases, as the election date approaches, a common trend of stock prices declining has been observed. Moreover, with the resumption of short selling, the number of those betting on stock price declines is expected to increase, potentially widening the drop in stock prices."