LS SECURITIES evaluated that it is unfortunate regarding KCC's decision to issue exchangeable bonds (EB) based on its holdings in HD Korea Shipbuilding & Offshore Engineering. There was also the option to sell shares to reduce the scale of borrowing funds and lower interest burdens. LS SECURITIES lowered its investment opinion to 'neutral (Hold)' while maintaining its target stock price for KCC at 342,000 won, considering that the stock price had increased.
KCC decided to raise about 849.6 billion won by issuing exchangeable bonds based on its shares in HD Korea Shipbuilding & Offshore Engineering. The nominal interest rate is 1.75%, and the maturity date is July 10, 2030. There are call options (the right to buy) and put options (the right to sell) attached.
Exchangeable bonds are corporate bonds based on the company’s own shares or shares of other companies. Investors can sell the shares after exchanging them if the stock price is higher than the exchange value or hold them until maturity to receive interest.
Researcher Jeong Gyeong-hee from LS SECURITIES explained that KCC plans to participate in the capital increase of 'MOM Holdings Company' with the funds raised from the exchangeable bonds. This company is a U.S. silicon manufacturer and an intermediate holding company that owns 100% of KCC's silicon sector, 'Momentive Performance Materials Inc (MPM Inc).'
Researcher Jeong noted, 'The investment paid into MOM Holdings Company is expected to flow down to the subsidiary and granddaughter company's capital increase procedures, ultimately planning to use it for the repayment of MPM Inc's acquisition financing borrowing fund.'
KCC reported that the average interest rate last year was 6.2%, and the interest expense was 347.8 billion won. With the issuance of the exchangeable bonds at a nominal interest rate of 1.75%, it expects to save approximately 38.1 billion won in interest expense if the average interest rate decreases. Researcher Jeong expressed, however, that it is unfortunate that they chose to issue exchangeable bonds instead of reducing borrowing funds through the sale of HD Korea Shipbuilding & Offshore Engineering shares.
KCC also announced its '2025 corporate value enhancement plan.' KCC pointed out that the main reason for the average price-to-book ratio (PBR · market capitalization ÷ net worth) being stuck at 0.35 over the past five years was due to the evaluation gains and losses of financial assets. It presented goals such as annual sales of 10 trillion won, an operating profit margin of 10%, a return on equity of over 10%, and a PBR of over 1 by 2030.
Researcher Jeong evaluated that this corporate value enhancement plan also has shortcomings. He stated, 'KCC has no specific direction regarding its financial assets, which account for 74% of last year’s operating profit in interest expenses,' and added, 'With the amendment of the Commercial Code, there is a possibility that the responsibilities of directors will be expanded to 'shareholders.'