As the secondary KOSDAQ market, especially biotech stocks, is getting volatile, an increasing number of listed companies are buying convertible bonds (CBs) before maturity. This is largely because bond holders are seeking to redeem bonds in advance as they are unlikely to earn profits due to slumping stock prices. A sharp rise in advanced redemption may cause financial difficulties to some KOSDAQ firms.
Another force behind the upsurge in advanced redemption requests is that more and more listed companies have issued CBs after KOSDAQ venture funds were launched in April last year. The fund invests 15 percent of its total assets in venture companies’ new shares or CBs. Accordingly, the demand for CBs has risen in a short period and the CB issuance of KOSDAQ-listed firms surged from 394 cases worth 3.37 trillion won (US$2.81 billion) in 2017 to 504 cases worth 5.34 trillion won (US$4.45 billion) last year. The figure reached 248 cases worth 3.76 trillion won (US$3.13 billion) as of Sept. 23 this year.
a growing number of investors are exercising the put-option rights as stock prices have had a dramatic drop this year and the room for an upturn is limited. There is great concern that early redemption could cause a cash outflow from small KOSDAQ companies.
An official from an investment bank said, “With the prolonged market slowdown, KOSDAQ-listed firms are having more and more trouble getting capital as CB refixing and advanced redemption requests have increased. KOSDAQ-listed companies which have cash flow problems are forced to issue CBs again to pay back earlier CBs in advance.”