Kyobo Securities secures 300 billion won in firepower, but RCPS comes with a “step-up” [fn Market Watch]

[Financial News]  Kyobo Securities plans to bolster its capital by issuing 300 billion won worth of redeemable convertible preferred shares (RCPS). Unlike a straightforward paid-in capital increase, the shares are structured so that the preferred dividend rate rises in steps after a certain period. While the issuance will provide funds for immediate business expansion, managing future dividend burdens and the timing of redemptions is expected to become a key challenge.
According to investment banking (IB) industry sources, Kyobo Securities held a board meeting on the 22nd and approved third-party allotments of RCPS worth 100 billion won and 200 billion won, respectively. The total is 300 billion won, with payment scheduled for the 30th.
A key feature of the deal is that the funds raised have been divided into two tranches with different redemption timelines and dividend terms.
The 100 billion won tranche of RCPS has an initial annual preferred dividend rate of 5.814%. The rate will rise by 1.5 percentage points each year after two years from issuance. The 200 billion won tranche has an initial annual preferred dividend rate of 5.993%, which will rise by the same amount each year starting after three years.
Based on the initial dividend rates, the annual preferred dividend amount is approximately 17.8 billion won. Once the step-up in dividend rates takes effect, the annual burden would be higher in theory. However, whether dividends are paid and in what amount may vary depending on distributable profits, the terms of issuance and other factors.
The composition of the investor group is also noteworthy. In addition to financial institutions such as Korea Investment & Securities and Hyundai Motor Securities, participants include Trini KS First and special purpose companies (SPCs) affiliated with Felix KRC. Given that the investment structure includes SPCs, the actual sources of the funds and how the investments will be recovered are also of interest.
The issue price was 26,454 won per share, a 200% premium to the reference share price. The two types of RCPS represent approximately 11.34 million shares in total. Although they are non-voting preferred shares, they can later be converted into common shares, potentially diluting existing shareholders’ stakes upon conversion.
Kyobo Securities plans to use the funds to strengthen the competitiveness of its existing core businesses and expand into new businesses, among other purposes. The move is also seen as a way to increase its equity capital to support its entry into the ranks of comprehensive financial investment firms.
IB industry sources cited the balance between the capital-raising benefits and medium- to long-term funding costs as a key point to watch in the deal. In particular, because the extent to which RCPS can be recognized as capital for accounting purposes may vary depending on redemption and conversion terms, analysts say its actual impact on financial soundness needs to be assessed.
An IB industry official said, “Ultimately, the success or failure of this 300 billion won fundraising depends on how high a return the company can generate with the funds it has secured,” adding, “If the results of business expansion fail to keep pace with the rising dividend burden, the possibility cannot be ruled out that additional funding pressure could arise during future redemptions or refinancing.”


[email protected] Kim Gyeong-a Reporter