[Funding] KainosMed Faces Concerns Over Early Redemption Request of CB Issued 2 Years Ago

June 2020, Issued 20 Billion CB... Conversion Price 20,350 Won
Higher Possibility of Redemption Request than Conversion
Urgent Need for Financial Structure Improvement... Capital Impairment Rate 20.6%

[Asia Economy Reporter Hyungsoo Park] Kainosmed, which is developing treatments for Parkinson's disease and AIDS, has initiated fundraising to improve its financial structure. It plans a rights offering to existing shareholders in preparation for early redemption demands on convertible bonds issued two years ago.

According to the Financial Supervisory Service's electronic disclosure system on the 14th, Kainosmed will issue 5.6 million new shares to raise 48.5 billion KRW. Shareholders will be allocated 0.251 new shares per existing share.

The raised funds will be used for operating expenses and debt repayment. Previously, in June 2020, Kainosmed issued its 2nd private placement convertible bonds (CB) to raise 20 billion KRW. The current outstanding bond balance is 17 billion KRW. The conversion price is 20,350 KRW, which is above the current stock price. Convertible bondholders can request early redemption between 24 and 45 months from the bond issuance date, with an early redemption yield of 1.0% per annum. Considering the current stock price level, the number of investors requesting early redemption may increase.

As of the end of Q1 this year, Kainosmed's debt ratio stands at 237.9%, up 50.5 percentage points from 187.4% at the end of last year. Total borrowings amount to 25.9 billion KRW, with convertible bonds accounting for the largest portion. The company borrowed approximately 2.3 billion KRW from Industrial Bank of Korea, which was used to pay the interim payments for the office and research facilities at the Gwacheon Knowledge Industry Center that it purchased.

Last year, Kainosmed recorded sales of 1.662 billion KRW and an operating loss of 11.219 billion KRW. In Q1 this year, sales were 4 million KRW with an operating loss of 3.878 billion KRW. Interest expenses last year amounted to 1.676 billion KRW. As of the end of Q1 this year, the company holds cash equivalents of 18.554 billion KRW and short-term financial products worth 13 billion KRW.

Although sales below 3 billion KRW are grounds for designation as a management item, Kainosmed is a company applying the technology growth exception and is granted a deferral from management item designation until the end of 2024. In the recent three fiscal years (2019?2021), it incurred continuing business losses before corporate tax exceeding 50% of equity twice. It has recorded operating losses continuously over the past four fiscal years. As of Q1 this year, the capital erosion ratio is 20.6%.

In urgent need of financial structure improvement through capital increase, Kainosmed has signed an underwriting agreement with Hanyang Securities for unsubscribed shares after rights offering and public offering. The underwriting fee for unsubscribed shares is 12.0%. The more unsubscribed shares there are, the greater the difference between the planned fundraising amount and the actual amount raised by Kainosmed.

Kainosmed conducts clinical trials by acquiring early-stage drug candidates and licenses out technologies to pharmaceutical companies. Since its establishment in 2007, it has signed a total of six technology transfer contracts. The total contract amount is 12.8 million USD, of which 7.7 million USD has been received to date. Last year, it received 3.5 million USD as contract payments for the brain neurological disease treatment (KM819) and anticancer agent (KM-10544) technology transfer contracts.

For Kainosmed's performance to improve, it needs to secure additional technology transfer contracts or receive milestones from existing contracts. If the timing of revenue structure improvement is delayed and losses continue, it will have no choice but to rely on external fundraising. It is expected that the debt ratio will decrease to 46.2% upon completion of this capital increase.

CEO Lee Gisub, the largest shareholder, plans to participate in about 15% of the new shares allocated to his 13.59% stake. The shareholding ratio after the capital increase is expected to decrease to 10.86%.

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