Major investors are exercising their put option call.
HYBE is at serious risk of running out of cash reserves after the put option rate for its third convertible bonds, issued in 2021, rose more than 80%. This implies that many HYBE investors are looking to redeem what they may consider to be a losing investment.
A put option refers to an early redemption call that allows investors to redeem the principal of the bond early after a certain period. According to the Korean securities depository On September 27, the put option exercise rate of HYBE’s third convertible bond reached 81.08%. HYBE will have to repay investors nearly ₩324 billion KRW (approximately $248 million) on the early redemption date of November 5.
HYBE stock prices have been on a downward trend since the third convertible bond was issued. On September 26, KST closed at ₩170,000 KRW (around $130 USD), half the conversion price, set at ₩386,000 KRW (around $294 USD) in 2021. According to reports, it will not be easy to earn profits from the conversion of shares at the current state of the company.
HYBE’s largest investor during the issuance of the third convertible bonds was Surprising assetswhich purchased bonds worth approximately ₩390 billion KRW (approximately $298 million USD) in 2021. The rest of the ₩10.0 billion KRW (approximately $7.63 million USD) was invested by Han Sung Soo From Pledis entertainment.
The early redemption period, during which investors will be able to exercise their put options, will close on October 7. HYBE will then have to reimburse investors one month after the end of the claims closing period. This is expected, however, to significantly impact HYBE’s liquidity reserves. According to the Korea Ratings Corporation, as of June 2024, the conglomerate’s liquid assets amount to ₩298 billion KRW (about $228 million USD).
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