[Funding] SD BioScience Increases Capital to Prepare for CB Redemption... Also Strengthens Health Supplements

[Asia Economy Reporter Jang Hyowon] SD Bioscience has decided on a 35.2 billion KRW rights offering. This is in preparation for convertible bonds (CB) that can be redeemed starting this October. Even excluding the rights offering portion, SD Bioscience plans to strengthen its health functional food business after the factory completion in June, utilizing funds secured from last year's logistics center sale.

According to the Financial Supervisory Service's electronic disclosure on the 16th, SD Bioscience announced that it has decided on a rights offering followed by a general public offering of unsubscribed shares worth 35.2 billion KRW.

The record date for new shares allocation is June 1, with 0.8476441693 new shares allocated per existing share. The company plans to issue a total of 19 million new shares, approximately 84% of the current total shares. The planned issue price is 1,855 KRW, to be finalized on July 4 and listed on July 27. The lead underwriter is BNK Investment & Securities.

The raised funds will be used to redeem the CBs. As of the end of Q1 this year, SD Bioscience issued CBs worth 38 billion KRW: 21 billion KRW for the first tranche and 17 billion KRW for the second tranche. The conversion prices per share for the first and second tranches are 4,176 KRW and 3,378 KRW, respectively.

Since the conversion prices are higher than the current stock price, early redemption requests are expected, so the company is securing funds in advance through the rights offering. The first tranche CB can exercise early redemption rights (put option) starting October 30, and the second tranche CB from June 18 next year.

Currently, SD Bioscience holds relatively ample liquidity. In November last year, SD Bioscience announced the sale of its Incheon logistics center for 29 billion KRW. The transaction was completed with the final payment received on April 29.

Although the sale proceeds and cash on hand effectively cover the CB redemption, SD Bioscience plans to use these funds for the health functional food business. The second factory for health functional foods in Eumseong will be completed in June. Once GMP certification is obtained around the end of June, full-scale production is expected to begin. The expected production capacity (CAPA) of the Eumseong 2nd factory is approximately 129.42 million units per month.

Increased sales and profits are anticipated from health functional food production. As of Q1 this year, SD Bioscience recorded consolidated sales of 24.8 billion KRW and an operating loss of 6 billion KRW. Although operating losses were recorded, the loss margin decreased by 36.7% compared to the same period last year.

This improvement is due to the company reducing advertising and commission expenses by downsizing its home shopping division. Additionally, the infomercial home shopping channel advertising was streamlined into more efficient channels based on last year's experience, restructuring the business to reach the break-even point (BEP).

An SD Bioscience official stated, “Once the Eumseong 2nd factory is completed, we plan to focus on expanding our scale initially through cost competitiveness. The secured cash, excluding the portion for CB redemption, will be invested as operating funds for the health functional food business.”