Major investors are exercising their put option claim.
HYBE is at serious risk of depleting cash reserves after the put option rate for its third convertible bonds, issued in 2021, has soared over 80%. This implies that many HYBE investors are trying to redeem what they might be deeming as a losing investment.
A put option refers to an early redemption claim that allows investors to redeem the bond principal early after a certain period. According to the Korea Securities Depository on September 27, the put option exercise rate of HYBE’s third convertible bond has reached 81.08%. HYBE will have to pay back investors nearly ₩324 billion KRW (about $248 million USD) on the early redemption date, which is November 5.
HYBE’s stock prices have been on a downward trend since the third convertible bond was issued. On September 26, KST, they closed at ₩170,000 KRW (about $130 USD), half the conversion price, which was set at ₩386,000 KRW (about $294 USD) in 2021. According to reports, it won’t be easy to earn profits from stock conversion at the current state of the company.
HYBE’s single largest investor during the issuance of the third convertible bonds was Mirae Asset Securities, which purchased around ₩390 billion KRW (about $298 million USD) worth of the bonds in 2021. The rest of the ₩10.0 billion KRW (about $7.63 million USD) was invested by Han Sung Soo of Pledis Entertainment.
The early redemption period, during which investors can exercise their put options, will close on October 7. HYBE must then repay the investors one month after the end of the claims closing period. This, however, is predicted to significantly affect HYBE’s cash reserves. According to the Korea Ratings Corporation, as of June 2024, the conglomerate’s cash assets amount to ₩298 billion KRW (about $228 million USD).
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