Chat GPT

Domestic bio and medical device corporations are consecutively moving to issue new shares and convertible bonds (CB). As the stock price index has rebounded and investor sentiment has revived, they are taking steps to secure operational funds and funds for research and development (R&D). Companies listed under special technology regulations that are at risk of delisting are also trying to secure funds.

According to the Korea Exchange and industry sources on the 17th, this month, The Biomed, AIOBIO, and ROKIT Healthcare have consecutively announced their decisions to issue convertible bonds (CB).

The Biomed, a diagnostic device company, announced on the 11th that it will issue the 10th series of CB worth 2.4 billion won to MiCo Group to secure funds for debt repayment. Additionally, it has also decided to issue the 11th series of non-name, non-convertible, and non-guaranteed private CB worth 5 billion won to secure operational funds. Non-name, non-convertible, non-guaranteed private CBs are bonds issued to specific individuals or institutions, which are freely transferable and do not bear interest.

ROKIT Healthcare, a company specializing in regenerative therapy, announced on the 16th that it has decided to issue a non-name, non-convertible, non-guaranteed private CB worth 30 billion won. The company stated, "We plan to use the secured funds to expand global clinical trials related to cartilage and kidney regeneration, as well as for strategic partnerships and acquisition of equity in other companies."

According to investment banking (IB) sources, new drug development company Y-Biologics is currently pushing forward to issue CB, having selected Mirae Asset Securities as the lead manager.

In the previous month, decisions to issue CB have continued. Medical artificial intelligence (AI) specialist JLK decided on the 30th of last month to issue CB worth 11.9 billion won. At that time, the company stated, "We plan to expand global approvals centered on the U.S. and Japan, elevate product sophistication, and fully commence hospital linkage projects." New drug development company VORONOI resolved on the 27th of last month at a board meeting to issue CB worth 50 billion won.

The wave of capital increases is also continuing. A capital increase refers to the act of a corporation raising funds by selling newly issued shares to investors for money. Last month, new drug development company Bridge Biotherapeutics decided to carry out a third-party allotment capital increase worth 20 billion won targeted at the U.S. company Parataxis Holdings’ subsidiary Parataxis Korea Fund No. 1, and also to issue CB worth 5 billion won.

Bukwang Pharmaceutical also carried out a capital increase. On the 16th, its parent company OCI Holdings invested 26.8 billion won to acquire 9,074,697 shares of Bukwang Pharmaceutical. This is the first time Bukwang Pharmaceutical has raised funds through a capital increase. The company plans to use 84.5 billion won of the secured funds for expanding existing manufacturing facilities, acquiring new facilities, and using 15.5 billion won for R&D operational funds.

On July 16th, the KOSPI and KOSDAQ indices are displayed on the status board in the dealing room of Hana Bank in Jung-gu, Seoul. /Courtesy of Yonhap News

Industry insiders pointed to signs of recovery in the domestic stock market as the background for the recent spate of capital increases and CB issuances. When the stock market rises, capital tends to flow into the stock market, making it easier for corporations to raise funds through capital increases. On the 14th, the KOSPI index recovered the 3,200 level for the first time in 3 years and 10 months since September 2021. On the 15th, the KOSDAQ index recovered the 800 level.

A financial sector official explained, "When the stock market enters a recession, stock prices fall causing dilution burdens from stock issuances to increase, leading to a tendency for capital increases or CB issuances to decrease, while in a recovery phase, investor sentiment revives, resulting in active participation by institutional investors in CB and capital increases."

"Corporate tax expense deduction losses (the 'corporate tax losses')" are also cited as a reason for bio corporations seeking to secure funds. According to the requirements for corporate tax losses, companies that are close to the expiration of the extended period for management items or are on the verge of delisting are trying to secure funds through capital increases or CB issuances to manage risks.

If a KOSDAQ-listed company has corporate tax losses exceeding 50% of capital for two or more times in the past three years, it will be designated as a management item. If the same situation continues, it constitutes grounds for delisting. Companies listed through the special technology provisions are granted an exemption from management item designation for up to three fiscal years, including the year of listing. Companies listed in 2022 will be subjected to management item designation requirements related to corporate tax losses starting this year. Thus, they are trying to secure funds in advance to manage the ratio of corporate tax losses.

A source in the bio industry stated, "Compared to the first half of the year, there are aspects that have become more favorable for bio companies in securing funds, but currently, there is a tendency for investment demand to be concentrated in promising platform technologies and antibody therapeutics within the bio sector." He added, "For companies that lack trust from investors or have weak financial strength, challenges may deepen."