Pharmaceutical and biotech corporations have moved to paid-in capital increases to raise funds, only to see their stock prices plunge. A paid-in capital increase is a way to raise money by issuing additional shares. Because existing shareholders' equity can be diluted, it has a short-term impact on share prices.
Corporations say they need funds for mergers and acquisitions and investments in research facilities in a high-interest-rate era. Some also use paid-in capital increases to repay debt. Experts advise investors to closely examine the purpose of a corporation's paid-in capital increase before investing.
◇ Samsung Biologics, 3 trillion won paid-in capital increase sends shares down 7%
Samsung Biologics(207940) said on the 28th of last month that it would raise 3 trillion won through a paid-in capital increase, and its share price fell about 7% from the previous trading day. Samsung Biologics said in July that it would acquire Swiss corporations Polypeptide Group. Polypeptide Group produces peptides used as raw materials for obesity and diabetes treatments. Samsung Biologics said it needs funds to acquire this corporation.
As of the end of June this year, Samsung Biologics held 2.2 trillion won in cash and cash equivalents. It will be able to secure an additional 3 trillion won through the paid-in capital increase. In a high-interest-rate era, raising funds through borrowing or issuing corporate bonds could increase interest burdens, so it reportedly chose a paid-in capital increase. The company will issue 2.27 million common shares at 1,322,000 won per share. After granting subscription rights to existing shareholders, it will proceed with a public offering if there are forfeited shares (shares not taken up by existing shareholders in the paid-in capital increase). The record date for the allocation of new shares is on the 6th of next month, and the listing date for the new shares is Nov. 30.
As of the end of the second quarter this year, the largest shareholder and related parties held 74.3% equity in Samsung Biologics. This includes Samsung C&T (43.06%), Samsung Electronics (31.22%), and Samsung Life Insurance (0.03%). Samsung Biologics said that because the proportion of small shareholders is not high, the burden from the paid-in capital increase is not expected to be significant. Chung Yoo-kyung, a Shinyoung Securities researcher, said, "Whether the largest shareholder participates fully in the paid-in capital increase is expected to play an important role in investor sentiment."
◇ Corporations struggle amid backlash from small shareholders
Medical artificial intelligence (AI) corporation VUNO(338220) also announced a 31.4 billion won paid-in capital increase plan, and on the 31st of last month its share price fell more than 24% from the previous trading day. VUNO has medical devices that detect risks such as cardiac arrest based on AI. VUNO plans to issue 6.3 million common shares, equivalent to 45% of its existing shares, at 4,980 won per share. Analysts say investor disappointment grew after the company said it would raise funds mainly for debt repayment, on top of the large scale of the paid-in capital increase.
VUNO plans to use 200 won of the funds raised through the paid-in capital increase to repay perpetual convertible bonds. It will invest 11.4 billion won in research and development and other purposes. A VUNO official said, "Starting in Dec., the interest rate on the perpetual convertible bonds will be adjusted and the rate will be gradually increased, so we chose a paid-in capital increase to repay them before then." VUNO plans to hold a briefing on the 4th to explain this to shareholders.
L&C BIO(290650), which owns the cosmetic injection Re2O, also pursued a 140 billion won paid-in capital increase, sending its share price lower. The company disclosed on July 31 that it would undertake a paid-in capital increase to build a production facility in Dongtan, Gyeonggi Province. After the news broke, on the 3rd of last month, the stock fell more than 6% from the previous trading day.
L&C BIO will also proceed with a bonus issue to protect shareholders. It will distribute one new share for every one common share to existing shareholders without receiving money. A company official said, "We will exercise a call option (the right to buy at a specific price) to acquire 15 billion won in convertible bonds and cancel them immediately," adding, "We will remove the possibility of exercising conversion rights and reduce the burden of shareholder equity dilution."
Park Chang-gyun, a senior research fellow at the Korea Capital Market Institute, said, "Corporations can raise funds relatively cheaply through a paid-in capital increase (compared with borrowing, etc.)," and added, "If the funds are invested to improve corporate value, it can be interpreted as a positive signal." He also said, "There can be cases where funds are used for purposes different from the initial capital increase plan, so caution is needed."