Investor sentiment froze after Vivozon Pharmaceutical, a drug specialist that fell into a capital impairment state, moved to push a shareholder-allocated rights offering worth about 50 billion won. It is not uncommon for biotech firms to conduct rights offerings, but general shareholders voiced complaints as roughly half of the funds to be raised are set to be used to repay debt borrowed from the largest shareholder, and because the largest shareholder's subscription participation rate is expected to be only 20%.
On the 14th, Vivozon Pharmaceutical closed at 5,100 won, down 21.3% from the previous trading day. Following a limit-down in after-hours trading on the 13th, the stock plunged for the second straight day.
News that Vivozon Pharmaceutical decided on a rights offering froze investor sentiment. After the market closed on the 13th, Vivozon Pharmaceutical disclosed that it had decided on a rights offering worth about 50 billion won. Through a shareholder allocation followed by a public offering of forfeited shares, it will issue 10,615,000 new shares to raise 49,996.65 million won. That is about 21% of the current total number of issued shares. Existing shareholders will be allocated 0.21 share per share held, and the expected issue price is 4,710 won, 27% lower than the closing price on the disclosure date.
It is not uncommon for biotech firms to choose rights offerings to raise funds. However, the rights offering that Vivozon Pharmaceutical is pursuing appears unwelcome to shareholders in both size and purpose. That is because roughly half, 23 billion won out of the 49.9 billion won to be raised, is slated for debt repayment.
Vivozon Pharmaceutical faces the maturity in January next year of 20 billion won in convertible bonds (CB), and it plans to repay principal and interest through this rights offering. In effect, it is borrowing from general shareholders to pay off urgent debt.
Shareholders are focusing on the fact that the CB investor is Vivozon Co., Ltd., a key shareholder of the company with a 10% equity stake. With about four months left until the January maturity next year, the company is pushing the offering with repayment, not conversion, in mind. The calculation is that it is highly likely Vivozon Pharmaceutical's share price will not reach the CB conversion price (9,410 won) by maturity. The market takes this to mean there will likely be no clear short-term catalysts, such as a technology transfer deal, by year-end.
Moreover, while the largest shareholder's side is taking a passive stance on the rights offering, it is making clear its intention to fully collect principal and interest on the CB it invested in, fueling complaints among minority shareholders. Some argue that, given its responsibility for management failure, it should forgo CB repayment.
According to Vivozon Pharmaceutical's securities registration statement on the Financial Supervisory Service's electronic disclosure system, the largest shareholder, Vivozon Holdings (24.8% equity), stated it will subscribe to only about 20% of the shares allocated to it. In that case, once the offering is completed, the largest shareholder's equity stake will fall to about 21.4%.
Meanwhile, Vivozon Pharmaceutical's financial condition is already at its limit. As of the first half of this year, total equity was 9.9 billion won, falling short of capital stock (12.5 billion won), placing it in a capital impairment state.
Current liabilities (debt due within one year) total 70.2 billion won, about twice the size of current assets (35.7 billion won) that can be converted into cash within a year. Losses have continued over the past three years (2022–2024), and it posted a net loss of 8 billion won in the first half of this year.
In response, Vivozon Pharmaceutical said, "As of the first half of this year, total equity is 99.1 billion won and capital stock is 125.3 billion won," adding, "It was a typographical error in the securities registration statement, and we will correct it through a first amendment."
On the 13th, Chief Executive Jang Bu-hwan of Vivozon Pharmaceutical said in a notice, "This rights offering is an inevitable decision for the company's survival and a new leap forward," and "The secured funds will be used to improve the financial structure and strengthen marketing for new drug commercialization."