Kangstem Biotech, a KOSDAQ-listed biotechnology company, is seeking to raise funds.
According to investment banking sources on July 28, Kangstem Biotech is considering issuing 30 billion won worth of third-party allocated convertible bonds (CB) with Daishin Securities as the lead underwriter. The funds raised will be allocated to research and development and operational expenses. The company aims to enhance its corporate value and investor sentiment based on clinical results from its key pipeline, including treatments for osteoarthritis, and new business achievements.
However, market analysts are uncertain whether the current optimism will facilitate a smooth large-scale fundraising. A primary concern is the learning effect from past investor losses. Kangstem Biotech has previously conducted several capital increases and mezzanine financing, but the stock price has not recovered post-issuance, leading to investor losses.
There is also a need to examine potential changes in the financial structure. As of the consolidated financial statements, Kangstem Biotech's total equity is approximately 62.2 billion won, while total liabilities stand at about 12.2 billion won. Although it appears that there is some capital capacity, the annual operating loss, which accumulates between 18 billion and 20 billion won, is eroding the equity.
If the CB is issued and recognized as debt, and assuming an annual deficit of 20 billion won continues for the next two years, the current equity of around 60 billion won could decrease to about 20 billion won. Meanwhile, if existing debts are not repaid, total liabilities would increase to approximately 42 billion won, combining the existing 12.2 billion won with the new 30 billion won from the CB. Should investors exercise their put options without converting the CB into stock, the financial burden could significantly increase, as equity would drop to around 20 billion won while the repayment obligation for the CB would reach 30 billion won. Industry experts believe that future operating performance and the ability to secure cash assets will be key variables in investment decisions.
A financial investment industry source stated, "Kangstem Biotech has experienced significant losses as most of the convertible preferred shares issued during the 2019 capital increase for institutional investors fell below the conversion price. Given the accumulated disappointment among existing investors, there is considerable market caution regarding the absorption of 30 billion won in interest-free mezzanine financing based solely on pipeline expectations."
In response to market concerns, Kangstem Biotech maintains that there are sufficient business momentum opportunities to enhance corporate value. A company representative stated, "We have clinical results for knee osteoarthritis treatments and opportunities for licensing out, as well as diversified business opportunities such as organoid projects and clinical research selections under the Advanced Regenerative Medicine and Advanced Therapy Products Act."
Meanwhile, Daishin Securities commented regarding the CB issuance, stating, "Nothing has been determined or finalized yet."
* This article has been translated by AI.
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