1. What Happened?
KEMTEC announced the exercise of its 17th convertible bond tranche, resulting in the issuance of 825,309 shares (3.28% of the market capitalization). These shares are scheduled to be listed on August 19th at a conversion price of ₩3,635, significantly higher than the current market price of ₩1,960.
2. Why Does It Matter?
The exercise of convertible bonds leads to an increased number of shares, potentially diluting the value of existing shares. This could negatively impact the stock price in the short term, particularly for KEMTEC, which is currently operating at a loss. However, the growth potential of its secondary battery business adds another layer of complexity to the situation.
3. What’s the Likely Impact on the Stock Price?
Short-term downward pressure on the stock price is expected due to the higher conversion price compared to the current market price, potentially triggering profit-taking. However, if the growth potential of the secondary battery business materializes, long-term stock price appreciation is possible.
4. What Should Investors Do?
- Short-term investors: Proceed with caution. Be prepared for potential further declines in the stock price.
- Long-term investors: Focus on the growth potential of the secondary battery business. Carefully monitor the performance after mass production begins in Q4 2025, the details of the ₩133.4 billion investment plan, and the company’s risk management strategies before making any investment decisions.
What is the exercise of convertible bonds?
Convertible bonds give the bondholder the right to convert their bonds into a predetermined number of shares at a specific price (conversion price) after a certain period. In KEMTEC’s case, the exercise of these bonds leads to the issuance of new shares, which will be listed on the stock market.
Why can the exercise of convertible bonds negatively impact the stock price?
The increased number of shares can dilute the value of existing shares held by current shareholders. Also, if the conversion price is higher than the current market price, it can lead to profit-taking and further price declines.
What is the outlook for KEMTEC’s secondary battery business?
Mass production is scheduled to begin in Q4 2025, and the contract with AESC is a positive sign. However, there are uncertainties, including increasing market competition, meeting quality standards, and securing funding for future growth.
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