[Funding] Enzychem Lifesciences Faces Increased Burden on KB Securities if Forfeited Shares Occur

Existing shareholders subscription rate 27%... 3.87 million remaining shares open for general subscription
If unsubscribed shares occur in general subscription, KB Securities will underwrite the balance

[Asia Economy Reporter Hyungsoo Park] Engchem Life Sciences, which is pursuing a rights offering, failed to achieve a subscription rate exceeding 30% from existing shareholders. Although there is a remaining general public offering process, the new share issuance price is higher than the current stock price, increasing the likelihood of a large number of forfeited shares. The underwriter's concern about having to take on the forfeited shares has deepened.

According to the Financial Supervisory Service's electronic disclosure system on the 24th, Engchem Life Sciences issued 5.3 million new shares, but the subscription from existing shareholders was only about 1.43 million shares. The subscription for the remaining 3,868,318 shares by general investors will proceed until the 24th.

If forfeited shares occur in the general public offering subscription, KB Securities will underwrite them. KB Securities charges a 10% fee on the underwriting scale when taking on forfeited shares.

Both Engchem Life Sciences and KB Securities are under pressure due to the low subscription rate from existing shareholders. Engchem Life Sciences will see a reduction in the fundraising scale equivalent to the forfeiture fee, causing disruptions to its capital usage plans. Even though KB Securities receives a 10% fee, if the number of shares to be underwritten increases, the burden when disposing of them also grows. Concerns about a large potential sell-off (overhang) could become a stumbling block. There is a possibility that KB Securities might have to sell at prices lower than the underwriting price, effectively returning all the fee income.

The new share issuance price of Engchem Life Sciences is 31,800 KRW, which is higher than the previous day's closing price of 31,750 KRW. On the previous day, the stock price of Engchem Life Sciences even dropped to as low as 30,700 KRW during intraday trading. Even existing shareholders who intended to increase their holdings expecting long-term growth found it more advantageous to purchase shares on the market rather than participate in the subscription to receive new shares.

If the general public offering subscription rate is not high, the underwriting amount KB Securities must take on will increase. Due to the large-scale rights offering, there is a risk of a flood of sell orders on the new share listing day on the 21st of next month. Considering the 10% forfeiture fee KB Securities will receive, if the stock price falls beyond a certain level, the disadvantages of underwriting the rights offering may outweigh the benefits.

Engchem Life Sciences resolved the rights offering at a board meeting held on September 17 last year. According to the plan, the subscription from existing shareholders should have been completed between December 16 and 17 last year, but the schedule was delayed and the stock price changed. The stock price, which had maintained the 60,000 KRW level, dropped to the 30,000 KRW range within two months. This was influenced by increased inflation concerns this year, as governments around the world began liquidity withdrawal, reducing preference for risk assets.

KB Securities, as the underwriter for Engchem Life Sciences' capital increase, intended to provide a bridge loan of 150 billion KRW. Engchem Life Sciences planned to borrow 150 billion KRW from KB Securities to purchase raw materials related to the contract manufacturing of the COVID-19 vaccine (ZyCoV-D) developed by the Indian pharmaceutical company Zydus Cadila. However, as the capital increase was delayed, the funding plan changed, and ultimately the bridge loan was not executed.

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