Samsung Biologics(207940) answered the market's questions over its paid-in capital increase worth 3 trillion won.
Recently, the market offered various interpretations of why the company moved to a paid-in capital increase even though it holds more than 2 trillion won in cash. Concerns especially grew over shareholder value dilution. The company said the decision factored in investments totaling 1.54 trillion won through 2034.
Samsung Biologics held an online investor relations briefing on the 3rd and explained the background of the paid-in capital increase and its mid- to long-term investment plans.
On the 28th of last month, the company's board decided on a paid-in capital increase worth 3.009 trillion won. It will issue 2.27 million new shares, equal to 4.9% of the existing shares. On the day of the announcement, the stock fell 6.78%, reflecting worries about dilution of shareholder value.
It said the move was not simply to raise funds to acquire the Swiss peptide contract development and manufacturing (CDMO) company PolyPeptide, but was made after comprehensively considering mid- to long-term investment plans including plants 6 and 7 and the third bio campus.
Ryu Seung-ho, head of management support at Samsung Biologics (executive vice president), said, "It is a decision that comprehensively considered various investments for growth to come." Ryu noted, "We judged that raising capital at this point is the best way to successfully complete the entire investment cycle planned through 2034."
The company summarized the background of the paid-in capital increase in three main points.
1) Securing funding in advance for 1.54 trillion won in investments
Samsung Biologics plans to invest a total of 1.54 trillion won through 2034 in the acquisition of PolyPeptide Group, plants 6 and 7, the third bio campus, and the expansion of U.S. production facilities. The company described this paid-in capital increase as a capital raise that considers the entire investment cycle, not funding for any single acquisition.
2) Capital raising over borrowing to minimize liability burden
If it borrowed the full 3 trillion won, the debt-to-equity ratio could rise from the low-50% range to the high-80% range. Considering interest rates and credit spreads, the judgment was that it would be burdensome to sustain large-scale, long-term investments with debt.
3) Preparing for front-loaded cash outflows
Cash at the end of the first half was about 2.2 trillion won, but with the PolyPeptide acquisition and plant expansions proceeding simultaneously, cash outflows are expected to concentrate early in the investment phase. The company said that without a paid-in capital increase, a cash shortfall of about 500 billion won is expected by year-end.
On this day, Samsung Biologics said there are no plans for an additional paid-in capital increase for now. It does, however, plan additional borrowing through 2029. It said shareholder return policies will be reviewed again in three years, taking into account future investment plans, cash generation, and financial conditions.
Brokerages assessed that while the number of new shares to be issued is about 4.9% of the existing shares, limiting dilution pressure, investor sentiment weakened due to the announcement of a larger-than-expected paid-in capital increase.
In the short term, resolving the company's labor-management uncertainty and resuming new orders are seen as keys to a stock rebound. Analysts said the company needs to show concrete updates on orders and utilization at the Incheon Songdo plant 5 and the U.S. plant, order intake for antibody-drug conjugate (ADC) CDMO, and the groundbreaking schedule for plant 6 to regain market trust.
Lee Ji-soo, an analyst at Daol Investment & Securities, projected, "Future corporate value depends on the investment performance of the raised funds and whether new orders recover."
Chung Yoo-kyung, an analyst at Shinyoung Securities, said, "The key is for Samsung Biologics to demonstrate progress on its mid- to long-term capital expenditure (CAPEX) plan of 1.54 trillion won."