THE KOREA ECONOMIC DAILY, GLOBAL EDITION

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 bond in August, which can be converted to the main Kospi-listed gaming giant Krafton Inc. shares.

The Kakao unit listed on the junior Kosdaq is in talks with institutional investors on the sale of the bond, which can be transferred into 833,330 shares of Krafton, or a 1.72% stake held by Kakao Games, according to investment banking sources on Wednesday.

Kakao Games’ holding in Krafton is valued at around 230.4 billion won as of Wednesday, given that Krafton’s share rose 0.55% to finish at 276,500 won on the same day. The Kakao unit plans to add a 15-20% markup to the valuation to raise about 280 billion won.

The bond issue is attracting the interest of many institutional investors as Krafton stock hit a new 52-week-high of 299,000 won on June 24, having surged 54.9% since Jan. 2 of this year.

It is the first time for Kakao Games to issue exchange bond. The game publisher will use the proceeds to redeem debts and convertible bond due this year.

KAKAO'S EARLY REDEMPTION OF BOND

In 2016, Kakao Games invested 5 billion won to buy 166,666 redeemable convertible preference shares (RCPS) of Krafton, which was called Bluehole Studio at the time. The Kakao unit has increased Krafton shareholding to 1.72% through conversion of the shares to common stocks and bonus issue.

In March 2021, Kakao Games issued 500 billion won worth of convertible bond in with 52,100 won of the conversion price. 

Before the bond matured in April, a majority of the bondholders requested early redemption as they didn’t want to convert the bond into shares of Kakao Games, which had dropped to around 20,000 won with declining profit. 

The game publisher’s operating profit plunged 20.9% on-year to 59.3 billion won last year. In 2022, the profit fell 4.8% on-year to 75 billion won.

Kakao Games made an early redemption of 37 billion won worth of convertible bond in April by combining 330 billion won in debt and 40 billion won of cash.

Once it sells exchangeable bond, the company will use the fund for financing 92.5 billion won worth of convertible bond that mature in September and development and promotion of new games, industry insiders said.

Meanwhile, Krafton posted a record-high quarterly revenue of 665.9 billion won and 310.5 billion won operating profit for the January-March period of this year, thanks to the global popularity of its mega-hit game PlayerUnknown’s Battlegrounds (PUBG).

The gaming giant is estimated to have achieved 562.2 billion won in revenue and 202.1 billion won in operating profit in the second quarter, respectively up 45.3% and 53.7% from a year-earlier-period, according to Jung Ho-yoon, an analyst at Korea Investment & Securities Co.

Write to Seok-Cheol Choi and Sang-Gi Lee at dolsoi@hankyung.com
Jihyun Kim edited this article.