[Funding]'3 Strikes 4 Times' NK Mulsan, Can It Rise with MRO Business?

Fundraising for MRO Product Purchases through Rights Offering
Resource, Travel, and Distribution Divisions Underperform... MRO Division Growth Expected

[Asia Economy Reporter Hyungsoo Park] NK Mulsan, which has recorded losses for several years, has begun raising funds. The funds raised through a rights offering will be used for drama production and operating expenses for the Maintenance, Repair, and Operations (MRO) business.

According to the Financial Supervisory Service's electronic disclosure system on the 6th, NK Mulsan will issue 37.65 million new shares to raise 23.9 billion KRW. The planned issue price per new share is 635 KRW, and the record date for the rights offering is the 12th of next month.

Of the funds raised through the capital increase, 9.2 billion KRW will be used to establish a cultural industry specialized company for new drama production. The produced drama is scheduled to air in May next year.

The remaining funds will be used to purchase MRO products. Payment for goods delivered to customers is usually received after delivery. There is about a four-month gap between the payment of accounts payable to suppliers and the collection of accounts receivable from customers. NK Mulsan is negotiating MRO contracts with four new clients. To address the operating cash flow shortfall that may arise from providing MRO services to new clients, the company explained that it will allocate 10.5 billion KRW.

Since NK Mulsan's existing business divisions have not been able to conduct proper business activities, the need to pursue new businesses has increased. This makes the capital increase unavoidable. As of the first half of this year, among the five business divisions, only the MRO division has generated meaningful sales. NK Mulsan acquired Mirae NTS Co., Ltd. in January this year and completed a small-scale merger in March.

In September 2016, NK Mulsan raised about 23.7 billion KRW through a public offering using a rights offering followed by forfeited shares. The funds were used as deposits and advance payments for purchasing thermal coal. Previously, on October 19, 2015, NK Mulsan signed a supply contract with Korea Western Power for 1.5 million tons of thermal coal.

To secure a stable supply volume, NK Mulsan signed a thermal coal sales contract with an Indonesian company. The Indonesian company received payment from NK Mulsan. However, the thermal coal mining company did not receive payment and refused to supply coal, causing NK Mulsan's resource business division to fail to fulfill the contract with Korea Western Power. NK Mulsan achieved sales of 27.9 billion KRW through resource development business in 2017, but sales have been nonexistent since last year.

On March 31, Korea Western Power notified NK Mulsan of contract termination for thermal coal supply, citing non-fulfillment of obligations. NK Mulsan paid 11.169 billion KRW to the Indonesian company as advance payments and deposits, and through litigation recovered 9.3 billion KRW. The difference of 1.869 billion KRW was recorded as a miscellaneous loss.

Sales from NK Mulsan's travel business division have also been declining annually. The company started a travel business arranging trips to the Maldives after signing a wholesale contract with a Maldives resort in early 2013. In the early stages, it was the first in Korea to sell Maldives tour packages through home shopping, attracting about 3,000 visitors in 2014. It expanded the business by signing tour contracts with Hana Tour and Interpark. Sales reached 341 million KRW in 2015 but have gradually decreased since then. As of the first half of this year, sales amounted to 7 million KRW. There are no reservations for next year.

The distribution business division is also sluggish. In February 2018, NK Mulsan signed a supply contract with a Russian snow crab and king crab importer and started domestic king crab distribution. NK Mulsan rented warehouses in Donghae and Sokcho and distributed snow crab and king crab to wholesalers and retailers. The first year of business recorded sales of 2.7 billion KRW. To diversify business items, cosmetics and bag distribution were added. Last year, sales in the distribution division decreased to 1.4 billion KRW. There have been no sales in the first half of this year.

NK Mulsan's sales were 28.1 billion KRW in 2017, 6.5 billion KRW in 2018, and 8.8 billion KRW in 2019. Sales have fluctuated as newly pursued businesses have not yielded results. Losses have continued as well. Operating losses were 2.7 billion KRW in 2017, 1.2 billion KRW in 2018, and 1.4 billion KRW in 2019.

As of the first half on a consolidated basis, NK Mulsan has liabilities of 9.4 billion KRW, a debt ratio of 18.94%, and a total debt dependency ratio of 6.08%.