K-pop giant HYBE is being forced to make an early repayment on KRW 400 billion (USD $293 million) in debt, and the company will be issuing new bonds to cover the amount.
According to a report at South Korea’s Maeil Business News on October 10, investors who own KRW 400 billion-worth of HYBE convertible bonds issued in 2021 have opted for early repayment, forcing HYBE to come up with the cash by November 5.
The bonds – the third series of convertible bonds issued by HYBE – carry a 0% interest rate, but have the option to convert the bonds, upon maturity, to HYBE stock at a price of KRW 385,000 ($282.50) per share.
To turn a profit on the bonds, HYBE’s share price would have to be higher than that level when the bonds matured. However, the K-pop giant’s stock price has been steadily declining for the past year-and-a-half, and closed on Wednesday (October 15) at KRW 179,500 ($131.75).
Nearly all (99.95%) of bondholders of the third series have requested early redemption, Maeil reported, citing data from the Korean Securities Depository.
At a recent internal company town hall, newly-appointed HYBE CEO Jaesang Lee sought to quell concerns about the company’s financial state. According to a report at allkpop.com, Lee reportedly told staff that the company has “KRW 1.2 trillion KRW (approx. $880 million) in available cash assets, and our financial condition is very healthy.”
HYBE’s latest semi-annual report shows that, as of June 30, 2024, the company had KRW 321.45 billion ($235.8 million) in cash and cash equivalents, plus KRW 753.1 billion ($552.4 million) in other liquid assets, for a total of KRW 1.075 billion ($788.2 million). The company also reported KRW 714.22 billion ($523.8 million) in current liabilities.
However, it doesn’t appear that HYBE is planning to draw down its cash pile to cover the bond repayment; rather, the company plans to refinance with a new bond issuance.
According to documents HYBE submitted to DART, South Korea’s repository of corporate filings, the company’s board has approved a new KRW 400 billion convertible bond issuance, to be made available to the public on Thursday (October 17), “for the early repayment of the entire amount of the third convertible bond.”
As with the previous convertible bonds, these will carry a rate of 0%, but their conversion price will be KRW 218,000, a roughly 20% premium on HYBE’s current stock price. The bonds will mature (i.e., will be available for conversion to HYBE stock) on October 17, 2029.
The bonds will be convertible to 1.83 million shares of HYBE stock, or 4.4% of HYBE’s outstanding common stock. Bondholders will be able to request early redemption as of October 17, 2027.
The vast majority of the new bonds (KRW 390 billion) will be issued by Mirae Asset Securities, while the remaining KRW 10 billion will be issued by Mirae Asset Capital.
Mirae Asset Securities is South Korea’s largest investment bank and stock broker by market capitalization. The bank reportedly issued the previous series of HYBE’s convertible bonds, and was a joint manager on HYBE’s IPO in 2020.
A Mirae Asset Securities official told Maeil Business News that the bank doesn’t expect any difficulties in the imminent bond sale.
“We have sold down a large part of the volume last time, and we plan to sell down smoothly this time due to high demand from institutional investors,” Maeil quoted the official as saying.
“Investors seem to be very interested in HYBE stocks, which are undervalued.”
“Investors seem to be very interested in HYBE stocks, which are undervalued.”
A Mirae Asset Securities official, as quoted by South Korean media
HYBE’s refinancing comes amid a dramatic year for the company, which has seen its stock fall more than 25% year-to-date amid a public dispute between the company and Min Hee-jin, the now-former CEO of HYBE sub-label ADOR.
This past spring, HYBE accused Min of plotting to sever ADOR from its parent company, an allegation Min has denied. News reports suggested Min was frustrated with HYBE because she believed the girl group that ADOR produces, NewJeans, was being copied by ILLIT, a girl group formed by another Hybe sub-label, BeLift Lab.
Amid the acrimony, HYBE reported disappointing Q1 earnings, with revenue falling 12.1% YoY. HYBE attributed the drop to the continued hiatus of its biggest K-pop act, BTS, whose members are serving out their mandatory military service.
The company saw a rebound in its Q2 earnings, reporting record-high revenue of KRW 640.5 billion ($465 million), a 3.1% increase year on year and up 77.5% quarter on quarter.
However, that resulted in only a temporary spike in HYBE’s stock price.
Declining market value has been an industry-wide problem in K-pop this year. SM Entertainment, generally considered to be the second-largest K-pop company after HYBE, has seen its stock price slide by nearly 30% year-to-date. JYP Entertainment has seen its stock price cut by half since the start of the year.
Besides a weakening of economic conditions in East Asia due to a slowdown in China, South Korean news reports suggest that the country’s weak entertainment sector is tied to various celebrity scandals and tensions between artists and their labels.Music Business Worldwide