Engchem Life Sciences, 'Aftereffects' Following Large-Scale Rights Offering

Raised 150 Billion KRW Through March Rights Offering
Large-Scale Vaccine Production Plan Delayed... Pursuing Business Diversification
KB Securities Holding Forfeited Shares, Continues On-Exchange Sales to Reduce Losses

[Asia Economy Reporter Hyungsoo Park] Engchem Life Sciences is struggling with the aftermath of a large-scale paid-in capital increase.

According to the financial investment industry on the 20th, Engchem Life Sciences' stock price rose to 5,700 won after the ex-rights date of the bonus issue on the 17th of last month, but then fell by 50% in about a month.

Engchem Life Sciences held a board meeting on July 27 and resolved a bonus issue allocating 5 new shares for every 1 existing share. On the day the news of the bonus issue was announced, the stock price surged to the upper price limit. After the ex-rights date, the stock price surged once again, but it has been steadily declining over the past month.

While Engchem Life Sciences is pursuing business diversification and promising shareholder-friendly policies, the stock price continues to underperform. The financial investment industry analyzed that this is due to a loss of trust regarding the overhang issue and plans for the use of the large-scale funds after the capital increase.

Engchem Life Sciences completed a rights offering paid-in capital increase in March, allocating 0.61 new shares for every 1 existing share. Through this large-scale capital increase, Engchem Life Sciences raised about 150 billion won to produce the COVID-19 vaccine 'ZyCoV-D'.

In its investment prospectus, Engchem Life Sciences estimated that if production of ZyCoV-D begins as planned, it would achieve sales of 750 billion won this year and 1.1 trillion won next year. Expected profits were 100 billion won this year and 140 billion won next year. Even with 431.5 billion won spent to establish facilities producing everything from vaccine raw materials to finished products, it was expected to recover the investment within a few years.

However, with the transition to the COVID-19 endemic phase, Engchem Life Sciences has delayed vaccine production. The approval of not only existing vaccines developed by Pfizer and Moderna but also the first domestic vaccine 'Skycovione Multi' has narrowed the position of latecomers in the vaccine market. The atmosphere of reluctance toward COVID-19 vaccination has also spread, making the situation different from March this year.

Engchem Life Sciences appears to plan to hold onto the secured funds for the time being. In a recent press release, it explained that considering its abundant cash balance, it can expect annual interest income of up to 8 to 9 billion won. It anticipated that net profit would increase and financial indicators would improve due to the base interest rate hike. As of the first half of this year, it holds about 230 billion won in cash reserves.

On the 6th of last month, Engchem Life Sciences held an extraordinary general meeting of shareholders and added wearable devices, smart devices, medical information data research and development, AI-based businesses, and platform businesses to its business objectives. It explained that it diversified its business areas and revenue models and laid the foundation for entering future promising industries. This marks a change in atmosphere from the end of February when it announced its commitment to the ZyCoV-D vaccine business through the 'Vaccine Development and Globalization Vision'.

Amid growing uncertainty about large-scale vaccine sales and profit forecasts, KB Securities, which acted as the lead manager for the paid-in capital increase, has steadily reduced its shareholding ratio, causing the stock price to decline. Since the listing of the new shares, the stock price has fallen by more than 40%.

KB Securities acquired 3,809,958 shares, equivalent to 71.9% of the newly issued shares from the capital increase. The issue price was 31,800 won per share, and KB Securities invested a total of 121.2 billion won. Its shareholding ratio reached 27.97%. The existing largest shareholder, Bridget Life Sciences, saw its stake decrease from 11.6% to 7.51%. CEO Son Ki-young's stake also shrank to 4.45%.

Six months after the capital increase, KB Securities' shareholding ratio dropped to 9.92%. It sold shares through on-market sales and block deals. Between March 15 and 18, shortly after receiving the new shares, it transferred over 1.19 million shares to Trinisyn Technology Association, Poslaville Association, and Polysni Association. The disposal price at that time was 29,300 won, 7.9% lower than the issue price. Considering a 10% underwriting fee for the rights offering, KB Securities still made a profit at the time of the block deal. Except for the shares disposed of through block deals, it has been reducing its shareholding ratio at a loss.

With the domestic stock market sluggish in the second half of this year and the overhang issue added, the stock price is being held back. Engchem Life Sciences aimed to reverse the mood through a 5-for-1 bonus issue. KB Securities took the opportunity to reduce its stake through on-market sales as the stock price surged due to the bonus issue. Even when the stock price surged due to the ex-rights date illusion effect, KB Securities sold shares on the market.

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