Allocating 0.15 New Shares per Old Share to Raise 54 Billion KRW
Performance Declined Last Year Due to COVID-19 Impact...5G Investment Reduced and Delayed
Performance Expected to Improve with Investment Resumption This Year...Securing Funds for Key Raw Material Procurement
[Asia Economy Reporter Park Hyungsoo] Solid has launched a large-scale fundraising again just one year after raising 10 billion KRW by issuing convertible bonds. About half of the funds raised through a rights offering will be used to refund part of the lease deposit, and monthly rent will be collected. Although performance was sluggish last year due to the impact of COVID-19, the company expects sales to increase this year and will also use the funds to secure key raw materials.
According to the Financial Supervisory Service's electronic disclosure system on the 9th, Solid will issue 7.81 million new shares through a rights offering followed by a general public offering of unsubscribed shares. The planned issue price per new share is 6,910 KRW, and it is expected to raise a total of 54 billion KRW. For every one existing share, 0.15 new shares will be issued. If there are unsubscribed shares after the general public offering, DB Financial Investment will underwrite them. The fee for underwriting the remaining shares is 10% of the underwriting amount.
Solid is a developer of wired and wireless communication equipment. Its main products include distributed antenna system (DAS) in-building optical repeaters, radio frequency (RF) repeaters, and wavelength division multiplexing (WDM) wired transmission devices. As of last year, the sales composition was 58% DAS repeaters, 24% RF repeaters, 13% WDM, and 5% others.
Last year, Solid recorded sales of 172.9 billion KRW, an operating loss of 16.9 billion KRW, and a net loss of 11.9 billion KRW. Due to the impact of COVID-19, domestic and international telecom operators reduced their investment scale, resulting in a 24.6% decrease in sales compared to the previous year. The decrease in sales increased fixed costs per unit, worsening profitability. Costs also increased due to the development of equipment for 5G commercialization, expanding the operating loss compared to the previous year.
Solid expects telecom companies to resume investments for 5G network upgrades that were postponed last year and has started securing key raw materials necessary for producing next-generation 5G technology-related products. It anticipates needing about 62 billion KRW for raw material purchases in the second half of this year. Solid has allocated 26 billion KRW of the funds to be raised through the capital increase for this purpose.
Na Seungdoo, a researcher at SK Securities, explained, "This year, the focus is expected to be on expanding 5G coverage area and upgrading the network to provide stable communication services," adding, "The demand for repeaters is likely to increase." He also noted, "Overseas, various countries are resuming investments for the commercialization of 5G communication services," and predicted, "With improving domestic and international environments, this year will be a year of performance rebound for Solid."
Of the raised funds, 25 billion KRW will be used to repay part of the lease deposit for the purpose of improving financial soundness and generating additional income through rental revenue. Solid leased five floors of its headquarters building to Smilegate Entertainment and received a deposit of 46.6 billion KRW. Refunding 25 billion KRW is expected to generate about 100 million KRW in monthly rent, resulting in an annual rental income of 1.2 billion KRW.
The remaining approximately 3 billion KRW will be used to exercise the put option on convertible bonds issued in May last year. Solid can exercise the put option on 30% of the 10 billion KRW convertible bonds. The conversion price is 5,884 KRW, which is more than 20% lower than Solid's current stock price.
Solid's largest shareholder is CEO Jung Joon, who holds 9.32% (4,864,321 shares). Including shares held by related parties, the largest shareholder group's stake is 11.66%. CEO Jung Joon will subscribe to 30% of the allocated shares in the rights offering. Since funds are needed to participate in the capital increase, the participation rate may vary depending on financial circumstances. After the rights offering, the largest shareholder's stake is expected to decrease by 0.96 percentage points to 8.36% compared to before the capital increase.
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