[Funding] Jayeonwahwan-gyeong Raises Operating Funds by Issuing CB Public Offering

Public Fundraising Again One and a Half Years After 2019 Paid-in Capital Increase
Profit Scale Not Large Due to High Cost of Sales Ratio

[Asia Economy Reporter Hyungsoo Park] Nature and Environment, which conducts environmental and ecological restoration projects, is issuing convertible bonds (CB) worth 11 billion KRW through a public offering. This comes 1 year and 4 months after raising 16 billion KRW through a rights offering in August last year, as the company returns to the capital market to repay borrowings and secure operating funds.

According to the Financial Supervisory Service on the 9th, Nature and Environment will issue CBs maturing on December 14, 2023, with a coupon rate of 2%. The bonds can be converted into common shares from January 14 next year until November 14, 2023. The conversion price is 1,255 KRW. The number of convertible shares is 8,764,940, which corresponds to 16.5% of the total issued shares currently outstanding.

Of the funds raised, 2.4 billion KRW will be used to improve the financial structure by repaying short-term borrowings and accounts payable. As of the end of the third quarter this year on a consolidated basis, total borrowings amount to approximately 12.9 billion KRW, with a collateralization ratio of 100%. The book value of collateral assets is about 23.8 billion KRW, which is approximately 184.5% of total borrowings.

84 billion KRW has been allocated for operating funds. This will be used to purchase raw materials for the Gongju and Boryeong plants.

Previously, Nature and Environment raised funds through a rights offering followed by a general public offering of forfeited shares in August last year. The funds raised at that time were used to repay 6 billion KRW in borrowings and 5.4 billion KRW for facility investments and raw material purchases.

The company covers operating expenses with funds raised from the capital market. Nature and Environment is engaged in environmental and ecological restoration projects as well as landscaping and horticulture businesses. Its major clients include the Ministry of Land, Infrastructure and Transport, Seoul Metropolitan Government, Korea Land and Housing Corporation, and Urban Development Corporation. Since environmental and ecological restoration projects are influenced by national policy directions, they form a relatively stable sales and profit structure.

Nature and Environment recorded cumulative sales of 19.8 billion KRW and an operating loss of 2.4 billion KRW through the third quarter of this year. Compared to the same period last year, sales decreased by 13.7%, and operating profit turned into a loss.

The shift to a loss was caused by an increase in the cost of goods sold ratio due to decreased sales and a rise in selling and administrative expenses due to workforce expansion. The cost of goods sold ratio on a consolidated basis for the third quarter of 2020 was 95.0%, more than 10 percentage points higher than 84.1% in the same period the previous year. The cost of goods sold ratios in 2018 and 2019, when operating profits were recorded, were 81.6% and 81.2%, respectively.

Nature and Environment has not been able to generate cash necessary for business diversification through operating activities. This is why it must continuously raise funds to cover cash outflows related to operating activities. If the cost of capital increases or capital raising itself becomes difficult, the company could face a liquidity crisis.

Another risk factor for Nature and Environment is the low shareholding ratio of the largest shareholder. The largest shareholder, Day Technology, holds only 1,995,214 shares of Nature and Environment, representing a 3.75% stake. Including shares held by CEO Byongyong Lee and related parties, the total stake is 6.27%. The largest shareholder has stated in the securities registration statement that it does not plan to participate in the public offering. It explained that it plans to maintain the current shareholding ratio by purchasing convertible bonds and shares on the market to secure its stake.

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