MiCo, which serves as the holding company of mid-sized MiCo Group, has decided to invest in KOSDAQ-listed QuantaMatrix. MiCo Group, which runs its core businesses in semiconductor components and energy, has shown a considerable presence in the recent mergers and acquisitions (M&A) market on the back of its financial strength, and this time it decided to invest in perpetual convertible bonds issued by the biotech venture QuantaMatrix.
QuantaMatrix, which listed on the KOSDAQ in 2020 via the technology special listing track, is a company developing microbial diagnostic technology founded by Seoul National University Professor Kwon Seong-hoon. After graduating from the Department of Electrical Engineering at Seoul National University and earning a doctorate at the University of California, Berkeley, CEO Kwon taught and continued his research at the College of Engineering at Seoul National University. From the university lab, he developed equipment and kits that automate microbial testing that had previously been done manually, and founded QuantaMatrix.
After the 2020 listing, as QuantaMatrix's losses accumulated, CEO Kwon sought external funding, and this time secured an investment from MiCo. Although they are convertible bonds, they do not have a put option clause that allows investors to demand early redemption, and the bonds are perpetual convertible bonds with a 30-year maturity, which is assessed to have an effect virtually equivalent to an equity investment.
QuantaMatrix said on the 22nd that it decided to issue 36 billion won in perpetual convertible bonds to raise operating funds. The entire bonds will be issued to the Pentastone No. 3 New Technology Investment Association, in which MiCo holds 99% equity. The company plans to use the funds raised through this bond issuance for research and development costs for developing the automation equipment (dRAST) and for commercialization operating funds.
The bonds carry a coupon interest rate of 0% and a yield to maturity of 3%. For QuantaMatrix, which has not posted a profit since listing, it effectively raised funds on favorable terms.
In particular, although perpetual convertible bonds are nominally debt, they are recognized as capital rather than a liability for accounting purposes. QuantaMatrix, which entered the KOSDAQ market in 2020 through the technology special listing, must meet the "pre-tax net loss (loss before income tax expense) criterion" to maintain a stable listing.
The Korea Exchange (KRX) designates a company as an issue under management if, in at least two of the past three years, the pre-tax net loss exceeds 50% of shareholders' equity; as of the end of last year, QuantaMatrix's loss before income tax expense to continuing projects ratio reached 301%. As of the end of September this year, it also recorded 14 billion won in pre-tax net losses.
However, if capital is expanded through the issuance of perpetual convertible bonds, it may ease concerns arising from failure to meet the pre-tax net loss criterion.
The period during which conversion of the convertible bonds into shares can be requested begins on Dec. 30 next year, and the conversion price is 4,329 won, similar to the recent share price. If the entire bonds are converted into shares, MiCo could secure 29.81% equity in the company. This is similar to the current largest shareholder's stake.
The largest shareholders of QuantaMatrix are related parties including CEO Kwon (30.52%). Kwon holds 11.41% equity, and 16.77% is held by Ezrah Charitable Trust. Having increased its stake compared with the time of listing by participating in a rights offering, Ezrah Charitable Trust is a private foundation established under U.S. law for asset business purposes and is a financial investor classified as friendly to CEO Kwon.
Because of this, some are closely watching the possibility of changes in QuantaMatrix's governance structure a year from now. However, since the company has long prepared measures to defend against hostile M&A and, judging from MiCo's investment track record to date, some say it is unlikely the two sides will engage in a management control dispute.
In 2022, QuantaMatrix introduced the so-called "golden parachute" system by strengthening the requirements for appointing and dismissing directors through hostile M&A at the shareholders' meeting. To pass a resolution to dismiss directors, a hostile M&A group must secure at least 80% of the voting rights of shareholders present and at least 75% of the total number of issued shares, and if a director is dismissed before the end of the term, in addition to severance pay, the company must separately pay 10 billion won to the CEO and 5 billion won to each director as dismissal compensation.
MiCo said it established the new technology investment association to secure opportunities for indirect investment in "innovative technologies and promising corporations."