[Funding] EDT①, Tangled Shareholder Rights... Will the Capital Increase Succeed?

EDT to Issue 26.1 Million New Shares Through General Allocation Rights Offering
Major Shareholder's Additional Capital Contribution Restricted... General Allocation Rights Offering as a Strategic Move
Failure to Raise Funds May Disrupt Profitability Improvement Plan

[Asia Economy Reporter Hyungsoo Park] EDITY, a developer of control device components related to guided weapons and avionics, is raising funds through a general public offering rights issue. However, the success of the capital increase is uncertain as legal disputes continue regarding the exercise of shareholder rights by DR International, EDITY's largest shareholder.

According to the Financial Supervisory Service's electronic disclosure system on the 3rd, EDITY is planning a rights issue by issuing 26.1 million new shares. The planned issue price is 594 KRW per share, totaling approximately 15.5 billion KRW. EDITY has 26.14 million shares listed, with a market capitalization of 19 billion KRW.

◆ EDITY to Promote New Business through Capital Increase

Of the funds raised through the general public offering rights issue, EDITY plans to use 2.6 billion KRW to repay borrowings and the remaining 12.9 billion KRW for facility investments.

EDITY produces defense sector products at its Gumi plant. To improve management and production efficiency, it plans to relocate and expand the factory. EDITY has agreed to acquire a factory owned by its affiliate, JIGA, by the end of next month. The transaction price is estimated at around 3.2 billion KRW. The deal will proceed after an appraisal to determine a fair price.

Recognized for its competitiveness in the Guided Control Unit (GCU) field, EDITY is planning a new business. It aims to develop a navigation guidance device capable of system integration (SI) of the GCU and guided control parts. This product is expected to have greater applicability than the existing GCU business and can be exported, contributing to increased sales. The anticipated investment period is from the end of this year to the third quarter of next year. The total facility investment is estimated at approximately 9.7 billion KRW.

EDITY, which has experienced poor performance since last year, seeks to increase sales and improve profitability through the new business. However, the success of the capital increase remains uncertain. EDITY's board chose a general public offering rights issue instead of a shareholder allocation rights issue. Unlike the shareholder allocation method, the general public offering excludes existing shareholders' rights to subscribe for new shares and targets the general public, increasing the likelihood of unsubscribed shares due to stock price fluctuations.

◆ Ewha Electric Industry’s EDITY Acquisition Strategy

It was also noted as a negative factor that Ewha Electric Industry, which has practical influence over EDITY's management, is in a difficult position to make additional investments.

EDITY's largest shareholder is DR International, holding a 22.55% stake. Established in May last year, DR International is managed as a paper company without significant business activities. Ewha Electric Industry is the largest shareholder of DR International and the actual controlling shareholder of EDITY.

On February 6, DR International was selected as the subscriber for EDITY's third-party allotment rights issue. Ewha Electric Industry, which was pursuing the acquisition of EDITY, attempted to change the subscriber from DR International to itself. However, considering the continuous postponement of EDITY's rights issue schedule, it decided to become the largest shareholder by acquiring management rights of DR International first and then lending funds to DR International.

On February 13, Ewha Electric Industry signed a contract to acquire management rights of DR International for 1 million KRW through a proxy holding DR International’s corporate seal and blank power of attorney. After the contract, the existing inside director resigned, and a new inside director was appointed and registered. On February 14, Ewha Electric Industry lent 7.6 billion KRW to DR International for the rights issue payment, and DR International paid the 7.6 billion KRW subscription amount.

Additionally, Ewha Electric Industry purchased 1,108,977 shares of EDITY from Rakai Korea in an over-the-counter transaction. It also acquired rights to subscribe for an additional 2,728,461 new shares, becoming the actual controlling shareholder of EDITY.

◆ DR International Shareholder Rights Dispute

Although Ewha Electric Industry’s acquisition of EDITY seemed smooth, complications arose when existing shareholders of DR International raised issues. The existing shareholders of DR International rejected Ewha Electric Industry’s exercise of shareholder rights, citing that the contract was made through a proxy, and on February 14 sent a certified letter claiming the invalidity of the transfer contract. Ewha Electric Industry dismissed the DR International director it appointed and registered a new inside director. Ewha Electric Industry filed a criminal complaint and applied for provisional injunctions to suspend the new inside director’s duties and for temporary shareholder status. The court issued a preservation order related to the injunction application, and a civil lawsuit regarding shareholder rights confirmation is ongoing.

The dispute over DR International’s shareholder rights may continuously have a negative impact on EDITY’s stock price, management stability, and business status.

Having already invested about 12.7 billion KRW in EDITY, Ewha Electric Industry judged that there are many constraints to making additional investments. Although the largest shareholder’s stake may be diluted through the general public offering, it believes that the dilution can be partially offset by exercising the new share subscription rights and converting convertible bonds held by the largest shareholder.

EDITY explained that if a large amount of unsubscribed shares occurs, the amount raised may be less than the expected public offering amount anticipated by the board, or the fundraising may fail. It urged consideration that this could disrupt business plans and financial improvement plans and negatively affect the recovery of profitability when deciding whether to participate in the capital increase.

This content was produced with the assistance of AI translation services.