[CB Crisis]② Vibozone Healthcare, 'Increased Investment but Continued Deficit' Rising Repayment Burden↑

Raised Funds by Concentrated CB Issuance in First Half of 2020
Continued Deficits Despite Consecutive Investments Including Pharmaceutical Company Acquisitions
Secured by Short-term Financial Products and Affiliate Shares
Increased Burden of Short-term Debt Repayment

[Asia Economy Reporter Hyungsoo Park] Investors holding convertible bonds (CB) of KOSDAQ-listed company Vibozone Healthcare are consecutively demanding early redemption (put option). This appears to be due to the current stock price plummeting below the CB conversion price, coupled with the decline in the attractiveness of the previously issued CB interest rates amid rising interest rates. As losses continue and loan maturities approach one after another, the financial burden is increasing.

According to the Financial Supervisory Service's electronic disclosure system on the 28th, Vibozone Healthcare recently acquired some of the 13th and 18th series CBs before their maturity dates. The acquisition amounts were 50 million KRW and 1.8 billion KRW, respectively.

Vibozone Healthcare issued the 13th series CB in January 2020 to raise 10 billion KRW for operating funds. The maturity date is January 17, 2023, with a nominal interest rate of 2.0% per annum and a guaranteed yield of 4.0% per annum at maturity. The conversion price at issuance was 1,594 KRW, but due to the stock price decline, it has been lowered to 1,086 KRW.

In June of the same year, the company also issued the 18th series CB worth 10 billion KRW. The conversion price was adjusted downward from 1,871 KRW to 1,275 KRW under a repricing clause reflecting the market price decline. The nominal interest rate and guaranteed yield at maturity are 2.1% and 4.1% per annum, respectively, slightly higher than the 13th series.

From January to June 2020, Vibozone Healthcare issued CBs six times, raising 70 billion KRW. Around the same time, it participated in a paid-in capital increase of its affiliate Vibozone, investing 50 billion KRW to acquire approximately 2.13 million new shares. Including existing shares, the holding ratio increased to 8.58%.

In September of the same year, the company spent 60.9 billion KRW to acquire an 89.57% stake in Inist BioPharma. More than 100 billion KRW of the raised funds were spent acquiring shares of other companies, including Vibozone and Inist BioPharma.

With the increase in affiliates, consolidated sales rose from 43.6 billion KRW in 2020 to 57.7 billion KRW in 2021. However, operating losses increased from 7.9 billion KRW to 17.9 billion KRW, due to selling and administrative expenses rising from 15.1 billion KRW to 37.6 billion KRW. As interest expenses increased, net losses widened from 43.8 billion KRW to 75.8 billion KRW during the same period.

Performance has continued to be sluggish this year. In the first quarter, sales were 20.8 billion KRW with an operating loss of 3.3 billion KRW. Although sales increased by 46.8% compared to the same period last year, the operating loss expanded.

By business division, the pharmaceutical segment handled by Vibozone Pharmaceuticals (Inist BioPharma) accounted for 63%, while the existing core LED business segment accounted for 34% of sales.

Over the past two years, the company’s scale has grown, but profitability has deteriorated. The stock price has dropped to about half of the level at the time of CB issuance. According to consolidated financial statements, as of the end of the first quarter, the company holds 11.6 billion KRW in cash and cash equivalents. Of the 10.6 billion KRW deposited in short-term financial products, it was provided as collateral related to the 19th series CB.

CB investors cannot ignore Vibozone Healthcare’s financial condition amid the inability to convert due to the stock price decline. As losses continue, the debt ratio rose from 124.7% at the end of last year to 174.7% at the end of the first quarter.

As of the end of the first quarter this year, the outstanding CB balance that has not been converted into common stock or repaid is about 38 billion KRW. Maturities begin from January next year. The conversion price ranges from 972 to 1,934 KRW. Considering the current stock price is below 1,000 KRW, the amount to be repaid is expected to be larger than the amount converted.