After the inauguration of the Lee Jae-myung government, expectations for the cultivation of "sovereign AI" led to a sharp rise in the stock price of Konan Technology, which is now conducting a paid-in capital increase for its shareholders. The company is seeking to raise 290 won for operating funds such as research and development, but the stock price has plummeted since the announcement.
Investors are particularly disappointed with the decision of CEO Kim Young-sum, the founder, to acquire less than half (43%) of the new shares allocated to him. There is also interest in how much SK Telecom and Korea Aerospace Industries (KAI), major shareholders of Konan Technology, will participate in this paid-in capital increase.
The Financial Supervisory Service (FSS) has designated Konan Technology's paid-in capital increase as a focus for review. This is because the potential impact on existing shareholders is deemed significant. As it is subject to focused review, the FSS will intensively review the securities registration statement submitted by Konan Technology within a week and will hold at least one face-to-face consultation with the company.
On the 16th, Konan Technology announced its plan for a paid-in capital increase through the method of "general public offering after share allocation to shareholders" after market close. This aims to raise 290 won in operational funds by issuing 1 million common shares.
The new shares will be issued at 29,050 won, which is 26% lower than the closing price of 39,200 won on the 16th. After the announcement that came after market close, the stock price plummeted by 13% in the after-market, and it has fallen by more than 14% on the 17th.
The stock price of Konan Technology surged after Lee Jae-myung was elected president. After President Lee emphasized the commitment to nurturing artificial intelligence (AI), the AI theme heated up the stock market, attracting investment to Konan Technology, which developed its own large language model (LLM). At the end of May, the stock price was around 23,000 won, but it surged more than twice to over 46,000 won last month.
However, news that the company plans to raise funds by issuing new shares at a much lower price than the current stock price has led to a sharp decline in the stock price. If the paid-in capital increase proceeds as planned, the new shares to be listed will amount to 8.7% of the existing shares.
The issue is that Konan Technology has yet to secure profitability. The company was listed on the KOSDAQ market in 2022 and has never posted a profit since its initial public offering. While revenues have increased, continuous losses are occurring as costs rise, primarily driven by research and development.
Last year, the annual net loss exceeded 13.6 billion won. If this trend continues, there are concerns about the potential for capital erosion. As of the end of last year, the company's capital was 5.7 billion won, and total equity was 19.6 billion won.
In a situation of ongoing losses, investor dissatisfaction has grown as the company has failed to attract external investment and has turned to a capital increase targeting existing shareholders. Major shareholder CEO Kim Young-sum plans to subscribe to only part of the volume allocated to him. According to the company, CEO Kim holds 23.7% of the company's equity and plans to subscribe for an amount worth 3 billion won, which is 43% of the allocated volume. The funds needed for subscription will be arranged using personal savings and other resources.
There is also interest in whether SK Telecom and Korea Aerospace Industries, which hold a significant portion of Konan Technology's equity, will participate in the paid-in capital increase. SK Telecom holds 20.6% of the company's equity, and Korea Aerospace Industries holds 7.8%.
The Financial Supervisory Service (FSS) has placed Konan Technology on its list of focused review targets. This is because the paid-in capital increase is viewed as likely to dilute the value of existing shares and undermine the rights of common shareholders. The FSS will conduct a thorough review of the necessity of this capital increase and the company's plans for shareholder communication.
Meanwhile, Konan Technology plans to participate in the "Independent AI Foundation Model Project" led by the Ministry of Science and ICT, also known as the selection of the "national representative AI."