Private equity fund manager Paratus Investment has invested 8.8 billion won in Novarex (194700.KQ), a health functional food company. The firm has been actively executing mezzanine investments since forming a new blind fund in May this year.
According to investment banking industry sources on Thursday, Paratus has agreed to purchase approximately 8.8 billion won worth of exchangeable bonds (EB) issued by KOSDAQ-listed Novarex by the end of this month. The bonds are exchangeable for Novarex common shares at an exchange price of 17,515 won. Both the coupon rate and maturity rate are 0%, making them so-called "zero-zero bonds," and no put option is included. The 20% premium added to the exchange price suggests Paratus has high expectations for Novarex's stock price appreciation.
Novarex has a market capitalization of approximately 270 billion won, with its stock price showing notable gains in the second half of this year. However, shares that once rose to 22,000 won have since corrected, closing at 14,520 won on Thursday.
The investment was executed through Paratus Innovation Growth M&A Fund 2, a 190 billion won blind fund. Paratus has made several mezzanine investments through this fund, including WCP and Sungeel HiTech in the secondary battery sector, and SK Bioscience (302440.KS) and Abclon (174900.KQ) in the pharmaceutical and biotech sector. The firm also added Hanyang Materials and KI Engineering to its portfolio through buyout investments rather than mezzanine. Paratus plans to execute additional mezzanine investments by early next year, deploying more than 70% of the fund's capital.
Paratus's mezzanine investments in listed companies focus on turnaround plays in stocks undervalued relative to their fundamentals. The firm explains that secondary battery stocks are positioned for a rebound when the industry recovers, while biotech and pharmaceutical stocks are expected to rise as fundamentals improve. For Novarex, Paratus determined that earnings improvement is expected following production capacity expansion, but the current stock price does not reflect this.
"This year, we achieved excellent returns by exiting investments in Hosantech with an internal rate of return of 51%, ITchem with an IRR of 35%, and Genome & Company with an IRR of 45%," a Paratus official said. "Having recently been selected as a 'Best Manager' in growth finance, we will do our utmost in making new investments and recovering portfolio investments."
