ADBIOTECH, a company specializing in animal immune antibodies, conducted a paid-in capital increase, but it faced a shortfall in subscriptions. ADBIOTECH is in a situation where it needs to secure funds as the time to exercise the early redemption request rights (put option) for convertible bonds (CB) will arrive in August, five months later. However, the shortfall in subscriptions for the paid-in capital increase has raised a red flag regarding its financial situation.
To immediately alleviate concerns about the financial situation, ADBIOTECH's stock price needs to double from its current level. If the stock price rises, CB investors may choose to convert their bonds into stocks for revenue instead of requesting early redemption.
The issue is that the stock price is struggling to rebound as performance improvements have been delayed, coupled with the burden of an overhang (potential sell-off volume) from the CB issuance.
ADBIOTECH conducted a paid-in capital increase subscription worth 5.7 billion won for two days starting from the 6th. The company planned to use the funds raised through the paid-in capital increase for operational costs (1.2 billion won) and debt repayment (4.5 billion won).
However, the paid-in capital increase subscription faced a shortfall with a competition rate of 0.55 to 1. Only a little over half of the initially planned 4.02 million shares, specifically 2.22 million shares, were subscribed, and the raised amount was merely half of the target amount at 3.1 billion won. The company decided not to proceed with subscriptions for the remaining unissued shares.
The company noted, “It is true that the paid-in capital increase fell short of expectations, but a certain amount of redemption funds have been secured,” and added, “We are not considering additional CB issuance or new paid-in capital increases.”
The debt repayment mentioned by the company refers to the sixth CB issued in April last year, amounting to 4.5 billion won, targeting KB, Mirae Asset, Samsung, NH, and Kiwoom Securities. The exercise period for the put option of this CB will arrive on August 27. The conversion price of the CB is 2,549 won, which is higher than the current stock price. This implies that CB investors are likely to exercise the put option.
In response, the company needs to secure sufficient funds, but concerns about liquidity are growing due to the shortfall in subscriptions for the paid-in capital increase. Ultimately, the company is in a situation where it needs to overcome the burden of overhang and elevate the stock price to double its current level to prevent investors from exercising their put options.
However, the problem is that there is no proper momentum for a stock price increase. ADBIOTECH, which entered the KOSDAQ market through a technical special listing in January 2022, has recorded operating losses for three consecutive years until last year.
At the time of the initial public offering (IPO), a profit transition was expected in 2022, but no significant performance improvements were achieved. Last year, it recorded a loss of 9 billion won, which was a larger loss compared to the previous year (-5.4 billion won). Cash and cash equivalents were only 600 million won as of the third quarter last year.
ADBIOTECH stated that it will do its best to improve performance this year. The company explained that starting from the second quarter, it will supply microorganisms for food waste processors of LG Electronics' new products and a large rental company's products. It also noted that orders for its next-generation antibody technology, NANO body antibodies, increased in the first quarter of this year.
Park Chang-yun, a researcher at the Research Institute, said, “Assuming that LG and the large rental company C occupy 50% of the domestic food waste processor market, a revenue of about 40 billion won can be expected when entering maturity,” and added, “While the revenue forecast of 22.5 billion won presented by ADBIOTECH seems somewhat aggressive, I have no disagreement that it could record the highest revenue ever this year.” Park also noted, “With the results of research and development, which had only incurred expenses until now, expected to appear, a profit transition within the year is anticipated.”