[Funding] Chilly Winds in the Stock Market... Concerns Over Contraction in the Issuance Market

Doosan Heavy Industries, Employee Stock Subscription Undersubscribed
Concerns Persist Despite Lower Offering Price and Reduced Offering Size

[Asia Economy Reporter Hyungsoo Park] As a subscription shortfall occurred in Doosan Heavy Industries & Construction's rights offering, other listed companies seeking to raise funds in the domestic capital market are also facing urgent challenges. Investment sentiment has weakened amid growing concerns over aggressive tightening by the U.S. Federal Reserve (Fed) and escalating fears of Russia's invasion of Ukraine.

According to the financial investment industry on the 15th, the KOSPI and KOSDAQ indices have fallen by 9.17% and 17.52%, respectively, since the beginning of this year until the previous day. Domestic institutional investors recorded net sales of 4.17 trillion KRW in the securities market and poured out net sales worth 1.2 trillion KRW in the KOSDAQ market during this period. Foreign investors purchased 460 billion KRW worth in the securities market but recorded net sales of 2.8 trillion KRW in the KOSDAQ market.

As institutions and foreigners increased their cash holdings, the indices declined, and the domestic stock market's fundraising function contracted. Doosan Heavy Industries & Construction conducted a shareholder rights offering subscription over two days from the 10th to the 11th. The subscription rate among existing shareholders was 105%, but the subscription rate among the employee stock ownership association was only about 65%. The total subscription rate was recorded at 97.44%. Doosan Heavy Industries & Construction posted sales of 11.8077 trillion KRW last year, up 22.54% from the previous year. Operating profit and net profit turned positive. On the 11th, it signed a 1 trillion KRW EPC (Engineering, Procurement, and Construction) contract for a Saudi Arabia forging plant.

The new share issuance price of Doosan Heavy Industries & Construction was 13,850 KRW, about 20% cheaper than the closing price of 17,350 KRW on the 11th. The subscription shortfall resulted from various factors, including market instability, concerns over large-scale sell-offs on the possible new share sale date, and the participation capacity of the employee stock ownership association members.

Not only Doosan Heavy Industries & Construction but also other listed companies pursuing capital increases are concerned about setbacks in their fundraising plans. Iljin Display, a KOSPI-listed company, is conducting a rights offering followed by a general public offering of unsubscribed shares. Initially, it planned to raise 30 billion KRW but is now expected to raise 26.1 billion KRW due to the stock price decline. The new share issuance price is 1,530 KRW, about 20% lower than the previous day's closing price of 1,905 KRW.

Kyungnam Pharmaceutical also saw a reduction in the amount of funds raised due to the stock price decline. The initially planned issuance price was 3,650 KRW, but the first issuance price was set at 2,540 KRW. While it was expected to raise 39.4 billion KRW, the fundraising scale decreased to 27.4 billion KRW based on the first issuance price. Korea BNC is also expected to see its fundraising scale decrease by more than 10 billion KRW due to the lower first issuance price.

Companies pursuing new listings are also increasingly unable to secure their desired public offering prices. Stonebridge Ventures finalized its public offering price at 8,000 KRW, below the desired range of 9,000 to 10,500 KRW. In the demand forecast targeting institutional investors, over 50% of institutions proposed prices below 9,000 KRW. This appears to be a conservative approach considering the stock market situation. A company official explained, "There are disappointing aspects regarding stock price trends within the industry due to the recent unstable market conditions," but added, "We accepted the market decision to reduce the offering size and lower the price."

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