Stock Price Soars, Surge in Mezzanine Rights Exercise... 1.5 Trillion in Three Months [fnMarketWatch]

[Financial News] As the KOSPI fluctuates around the 3200 mark, stock prices have soared, leading to a significant increase in the exercise of rights for stock-linked bonds (mezzanine) in the second quarter of this year. 
According to the financial investment industry on the 13th, the exercise volume of mezzanine (CB EB BW) from April to June this year reached 1.5793 trillion won. This is nearly four times the exercise volume (405.8 billion won) of the first quarter.
Among them, the exercise volume of CB (convertible bonds) was overwhelmingly large. During this period, the CB exercise volume reached 1.2159 trillion won, more than six times the volume of the first quarter (201.4 billion won). CBs are initially issued by companies like ordinary corporate bonds, but after a certain period, they are granted the right to be converted into the company's stock. Investors who expect stock prices to rise invest with the intention of converting to stock. For example, Lotte Tour Development has become a representative stock with active CB conversion.
Lotte Tour Development's stock price had been unable to escape from sluggishness but recently started to rise due to expectations of improved relations with China. 
The stock conversion rights volume of Lotte Tour Development's CB reached 26.3 billion won between June and July. For instance, Lotte Tour Development's 9-2CB, issued in April 2023, has a stock conversion price of 9,587 won per share. Lotte Tour Development's stock price, which hovered around 7,000 won at the beginning of the year, surged to 17,890 won (closing price) as of the 11th of this month. 
Additionally, the exercise volume of EB's exchange rights in the second quarter was 315.8 billion won, and the exercise of BW's warrants was 476.6 billion won. The exchange rights exercise volume of exchangeable bonds (EB) issued by HD Korea Shipbuilding & Offshore Engineering reached 200 billion won over three months. The exchange target of HD Korea Shipbuilding & Offshore Engineering's EB is HD Hyundai Heavy Industries stock. The exchange price is 346,705 won per share of HD Hyundai Heavy Industries. As the stock price of HD Hyundai Heavy Industries rose rapidly, 70 billion won worth of EB stock exchanges were made in June alone. As of March 28, the stock price of HD Hyundai Heavy Industries was around 280,000 won, but it maintained the 420,000 won level as of June 30. 
Previously, HD Korea Shipbuilding & Offshore Engineering issued a total of 600 billion won worth of EB in March. Investors who purchased the EB obtained exchange rights to receive a total of 1.95% of HD Hyundai Heavy Industries shares.
Meanwhile, as the Democratic Party of Korea is preparing an amendment to the Commercial Act that includes the basis for 'mandatory treasury stock cancellation,' the issuance volume of EB is rapidly increasing. The essence of the bill is to require the cancellation of treasury stock within one year as a principle.
As a result, the net issuance volume of EB in July (1st to 11th) reached 594.2 billion won. This is five times the issuance volume (124.8 billion won) of June.


khj91@fnnews.com Kim Hyun-jung Reporter