Kakao Games Corp., a game publishing unit of South Korean tech giant Kakao Corp., is set to issue an estimated 280 billion won ($203.2 million) worth of exchangeable bonds in August, which can be converted into shares of leading Kospi-listed gaming giant Krafton Inc.
The Kakao unit, listed on the junior Kosdaq, is negotiating with institutional investors for the bond sale. According to investment banking sources, the bonds can be exchanged for 833,330 shares of Krafton, representing a 1.72 percent stake held by Kakao Games.
Kakao Games’ stake in Krafton is valued at approximately 230.4 billion won, given that Krafton’s share price rose 0.55 percent to finish at 276,500 won on July 17, 2024. The Kakao unit plans to add a 15-20 percent markup to the valuation to raise about 280 billion won.
Investor Interest in Krafton Stock
The bond issue attracted significant interest from institutional investors as Krafton’s stock reached a 52-week high of 299,000 won on June 24, surging 54.9 percent since January 2. This is the first time Kakao Games will issue exchangeable bonds. The game publisher intends to use the proceeds to redeem debts and convertible bonds due this year.
In 2016, Kakao Games invested 5 billion won to purchase 166,666 redeemable convertible preference shares (RCPS) of Krafton, then known as Bluehole Studio. The Kakao unit increased its stake to 1.72 percent by converting these shares to common stock and bonus issues.
In March 2021, Kakao Games issued 500 billion won worth of convertible bonds with a conversion price of 52,100 won. However, before the bond matured in April, most bondholders requested early redemption as they preferred not to convert the bonds into shares of Kakao Games, which had dropped to around 20,000 won due to declining profits.
Financial Performance and Future Plans
Kakao Games’ operating profit fell 20.9 percent year-on-year to 59.3 billion won last year after a 4.8 percent decline to 75 billion won in 2022. The game publisher made an early redemption of 37 billion won worth of convertible bonds in April, combining 330 billion won in debt and 40 billion won in cash.
Upon selling the exchangeable bonds, Kakao Games plans to use the funds to finance 92.5 billion won worth of convertible bonds maturing in September and develop and promote new games.
Meanwhile, Krafton posted a record-high quarterly revenue of 665.9 billion won, and 310.5 billion won in operating profit for the January-March period this year, driven by the global popularity of its mega-hit game PlayerUnknown’s Battlegrounds (PUBG).
According to market experts, Krafton is estimated to have achieved 562.2 billion won in revenue and 202.1 billion won in operating profit in the second quarter, up 45.3 percent and 53.7 percent, respectively, from last year.
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