Bucket Studio, Why Did They Purchase a Building More Expensive Than Their Assets?

[Asia Economy Reporter Jang Hyowon] Bucket Studio, a KOSDAQ-listed company, is purchasing a building worth 73 billion KRW in the Gangnam area of Seoul. This amount far exceeds the company's total assets, drawing significant market attention.

According to the Financial Supervisory Service's electronic disclosure on the 5th, Bucket Studio announced that it will acquire an 11-story building located on Gangnam-daero, Seocho-gu, Seoul, for 73 billion KRW. The company paid a deposit of 7.3 billion KRW in cash on the day of the announcement and must pay the remaining 65.7 billion KRW by February 26.

The company stated, "We purchased the real estate to secure space for new business initiatives and long-term growth infrastructure, as well as to create synergy through the integration of affiliates."

Bucket Studio is spending an amount larger than its total assets on this real estate purchase. As of the end of the third quarter last year, Bucket Studio's total assets were 52.8 billion KRW. The building purchase cost is approximately 138% of the total assets.

Consequently, the market is focused on how Bucket Studio will raise funds by the payment deadline. As of the end of the third quarter last year, Bucket Studio held 900 million KRW in cash.

Bucket Studio primarily operates text message sending services such as Munja Cheonguk and Munja Joa. Sixty-three percent of its total sales come from text services. It also engages in video content distribution, copyright protection, theater screenings, and concession businesses.

As of the end of the third quarter last year, cumulative sales were 13.7 billion KRW, operating profit was 150 million KRW, and net loss was 1.4 billion KRW. The net loss was due to approximately 3.4 billion KRW in losses reflected from affiliated companies. One such affiliate is BT1 (currently Inbiogen). Bucket Studio recorded losses of 9.9 billion KRW in 2018 and 3 billion KRW in 2019. It is difficult to generate enough profit to cover the real estate purchase balance from operating results.

The 7.3 billion KRW deposit for this real estate purchase was partially paid using funds raised from convertible bonds (CB) issued last month. On December 4, Bucket Studio issued 20 billion KRW worth of CBs for new business investments. Additionally, it plans to conduct a third-party allotment capital increase worth 10 billion KRW by the end of January.

Even if the capital increase succeeds, available cash is expected to be only 23 billion KRW. This means that approximately 42.7 billion KRW must be raised within about two months until the building purchase balance payment deadline. If additional CB issuance and capital increases are conducted, the potential dilution could be burdensome. The recent CB issuance has already increased Bucket Studio's potential shares by more than 40% compared to the current total shares.

In response, a Bucket Studio official said, "Given the low-interest-rate environment, we are exploring various options such as raising funds through borrowings or mobilizing affiliate funds," adding, "We will be able to secure the funds by the payment deadline."