[Public Companies at a Crossroads] Converz, Long Road Ahead for Financial Structure Improvement... Ongoing Corrections

[Asia Economy Reporter Park Hyungsoo] Converz, which conducted a capital reduction earlier this year to improve its financial structure, has launched a rights offering. Converz expects to resolve its capital erosion status and reduce interest expenses upon completion of the capital increase.

According to the Financial Supervisory Service on the 18th, Converz is conducting a paid-in capital increase through a rights offering with a general public subscription of unsubscribed shares, allocating 0.15 new shares per existing share. The planned issue price of the new shares is 7,730 KRW, and a total of 1.5 million shares will be issued to raise 11.6 billion KRW.

Converz plans to use the funds raised through the paid-in capital increase to repay the 10th and 11th series convertible bonds. Additionally, the funds will be used to acquire shares in its subsidiaries RF Window and Converz Global.

Converz, which is undergoing financial restructuring, resolved the paid-in capital increase at a board meeting held on February 14. Since then, the schedule for the capital increase has been continuously delayed due to successive amendments to the preliminary investment prospectus. The company submitted the tenth amended securities registration statement on the 10th. If there are no further amendments, subscription by existing shareholders will proceed in January next year, and the new shares will be listed in February.

Converz has a history of suspension of stock trading due to a disclaimer of opinion from an external auditor in the '2019 audit report.' Continued operating losses have resulted in a state of complete capital erosion as of the end of 2019, where capital stock exceeds equity capital. This triggered a substantial review for delisting eligibility under Article 28-2, Paragraph 4 of the KOSPI Listing Regulations.

To cover losses, Converz held a board meeting on January 15 and resolved to reduce capital by 90% without compensation. The capital reduction has been completed, and the ongoing paid-in capital increase will help improve the financial structure.

Converz recorded an operating loss of 2.631 billion KRW and a net loss of 3.251 billion KRW in the first half of this year. As of the end of the first half, accumulated deficit stands at 104.595 billion KRW, and current liabilities exceed current assets by 4.752 billion KRW. The company has provided a payment guarantee of 5.869 billion KRW for borrowings of its affiliate RF Window.

On the 6th of last month, Converz received a re-audit report in which the financial statements for 2018 and 2019 and the audit opinion were changed to unqualified. Although the external auditor's review opinion on the first half financial statements was a disclaimer, the review opinion changed to unqualified in the re-review report received on the 23rd of last month.

After receiving the re-audit report, Converz submitted a request for review of the implementation of its improvement plan to the Korea Exchange. The Exchange held a KOSPI Market Listing Disclosure Committee meeting to review Converz's implementation of the improvement plan. Due to the occurrence of delisting reasons caused by complete capital erosion and its resolution, the Exchange decided to refer Converz to the Corporate Evaluation Committee for review under Article 49 of the KOSPI Listing Regulations. Depending on the results of the Corporate Evaluation Committee's review, a substantial examination of Converz will proceed.

As of the end of the first half of this year, Converz's debt ratio stands at 2,137%, and the current ratio is 76%. According to the '2018 Corporate Management Analysis' provided by the Bank of Korea, the average debt ratio and current ratio in the same industry are 103.3% and 120.6%, respectively.