KCC Corp: EB Issue of $625 Million + KCC Corp and KCC Glass Share Swaps

• KCC announced that it is issuing an EB worth $625 million in foreign currency using its stake in HD Korea Shipbuilding & Offshore Engineering as the underlying asset.

• The asset that is used as the underlying asset for the EB is 2.056 million shares of HD Korea Shipbuilding & Offshore Engineering held by the KCC Corp

• We believe this large EB issue by KCC Corp is likely to have a positive impact on KCC Corp but slightly negative impact on HD KSOE.

KCC Corp's Main Business Areas (Source: KCC)

Conclusion First

We believe this large EB issue by KCC Corp is likely to have a positive impact on KCC Corp but slightly negative impact on HD KSOE. Generally, investors have negative view of EB issue in Korea if the underlying asset is treasury shares since most investors would rather have the companies cancel the treasury shares rather than use them to issue EBs.

However, in this case, KCC is not using its treasury shares for the EB issue but rather its stake in HD KSOE which has been just sitting on KCC's balance sheet. By unloading its stake in HD KSOE, KCC will use the funds raised from this EB issue to participate in the paid-in capital increase of its overseas subsidiary MOM Holdings, and MOM Holdings will use them to repay the acquisition financing debt of its US subsidiary Momentive Performance Materials.

Plus, KCC is issuing this EB after significant gains on its original purchase of HD KSOE shares. Therefore, these factors are likely to be favorable to KCC Corp.

This EB issue is likely to have a slightly negative impact on HD KSOE since there could be more shares of HD KOSE coming out in the market in the next several years.