Within just 10 months of being listed, KOSDAQ-listed company A8 has carried out a rights offering for capital increase. A8, which was confident of turning its operating profit to black this year, has been posting operating losses up until the third quarter and is in need of working capital. Given the anticipated exercise of conversion bond (CB) put options due to consecutive stock price declines, securing funds has become essential.
Shareholders are protesting as the stock price plummeted significantly following the sudden announcement of the rights offering. However, A8 noted that it had to raise funds through a rights offering because year-end financing was becoming difficult, and approximately 12 billion won related to the Sejong Smart City and Busan Eco Delta City projects would be reflected in results starting next year, with new orders also expected, indicating significant performance growth from next year.
Additionally, for its mid- to long-term growth strategy, there has been consideration of mergers and acquisitions (M&A) since shortly after going public. A8 emphasized that while funding may be needed once M&A becomes visible, it plans to carry out a rights offering through third-party allocation.
According to the Financial Supervisory Service electronic disclosure system on the 18th, A8 plans to execute a rights offering via a public offering of unallocated shares to shareholders on Feb. 20 at 5,530 won per share. The total size is 17.7 billion won, with 0.33 shares allocated per existing share, totaling 3.2 million new shares issued. The newly listed shares account for 33.2% of the existing shares (9,654,477). After the sudden decision on the rights offering was disclosed following the market close on the 13th, the stock price plunged 24.7% on the next trading day, finishing at 5,980 won. On the 17th, the stock price slightly rose to 6,090 won, but it is still down over 20% compared to before the disclosure.
Established in 2012, A8 primarily develops and sells a digital twin platform based on simulation technology. Digital twin technology simulates real-world objects as virtual representations, predicting and solving possible issues that could arise in reality. The largest shareholder is founder and CEO Kim Jin-hyun, who holds 25.73% of the equity.
A8, which entered the KOSDAQ market on Feb. 23 through technical exception, had projected rapid sales growth based on existing orders at the time of listing, forecasting sales of 16.4 billion won and operating profit of 3.8 billion won for the year. However, by the third quarter, sales amounted to only 1.6 billion won, which is one-tenth of the expected figure, and the operating loss reached 7.9 billion won. The company explained that its operating revenue tends to concentrate in the second half of the year, but it still recorded an operating loss of 2.4 billion won in the third quarter.
Kim So-hye, a researcher at Hanwha Investment & Securities, said, "The delay in revenue recognition from the Sejong Smart City project has resulted in a revenue gap of about 6 billion won for this year," adding, "Due to the lack of meaningful new orders, the cumulative sales amount for the third quarter has decreased by 26% compared to the previous year."
In a situation of poor performance, A8's cash and cash-equivalent assets stood at only 1.1 billion won by the third quarter, prompting the company to make a bold move with a rights offering to improve its financial structure after securing funds. Before the listing, A8 had issued a series of conversion bonds (CB) worth 5.9 billion won to Hanwha Investment & Securities and Stonebridge DNA Innovation Growth Investment Association, among others. With an interest rate of 7% and an exercise price of 19,000 won per share, the stock price which ended at 22,600 won at the time of listing has since dropped by about 73%, increasing the likelihood of early redemption requests. The bonds can be redeemed early after October of this year.
A8's debt ratio surged from 78.6% in the first quarter to 235.09% in the third quarter this year. Therefore, with this rights offering, they plan to use 7 billion won for CB debt repayment and allocate 10.7 billion won for research and development and marketing expenses.
A8 stated, "Through this rights offering, if all conversion bonds are repaid, our debt ratio and reliance on borrowed funds will improve to 56.8% and 22.3%, respectively," and added, "After the repayment of CB in the first quarter of next year, we plan to use the remaining amount as working capital until 2026."
However, shareholders are protesting. Currently, most of A8's minority shareholders are in a loss position. According to NH Investment & Securities' Namoo app, 99.49% of A8's investors have incurred losses, with an average return rate reaching a negative (-) 58.11%.
An A8 official noted, "The early redemption dates for CB are arriving this month and next month, necessitating preparations, and time is tight, so we proceeded with a rights offering for shareholders," adding, "This year's performance is expected to be similar to last year's."
He further stated, "There are imminent new orders, and since contracts for the Sejong Smart City have already been signed, a significant portion will be recognized in revenue next year, and it is expected that the delayed Busan Eco Delta City will also have orders next year," adding, "Until M&A becomes visible, there are no additional funding plans at this time."