[CB Crisis] ⑥ SD BioScience Increases Capital in Preparation for Put Option Exercise

Cost Reduction Efforts Increased After New Business Launch
Financial Structure Improvement Expected After Capital Increase

[Asia Economy Reporter Hyungsoo Park] SD Bioscience is raising funds through a rights offering. The raised funds will be used to prepare for early redemption requests (Put Option) on outstanding convertible bonds. If conversion rights are exercised instead of the put option, the funds will be used as operating capital for the health functional food business.

According to the Financial Supervisory Service's electronic disclosure system on the 28th, SD Bioscience is conducting a rights offering followed by a general public offering of forfeited shares, with the first issuance price fixed at 1,765 KRW. This is about 4.9% lower than the 1,855 KRW planned at the board resolution. The size of the capital increase was reduced from 35.2 billion KRW to 33.5 billion KRW. The final issuance price will be confirmed three trading days before the subscription date. Subscription will be accepted from existing shareholders from the 12th to the 13th of next month.

The public offering funds will be used to repay outstanding convertible bonds. The conversion price for the 1st convertible bond (CB) is 4,176 KRW, and for the 2nd CB is 3,378 KRW. The current stock price is around 2,600 KRW, which differs from the conversion prices. The company expects early redemption requests for the outstanding total amount of 38 billion KRW.

SD Bioscience privately issued the 1st and 2nd CBs in 2020 and 2021, respectively. The funds raised from issuing the 1st CB were used for 9.5 billion KRW of construction costs for the Eumseong Plant 2. About 11.5 billion KRW of the remaining funds were spent on purchasing windbreaker products and cosmetics for home shopping sales (4.4 billion KRW), and 6.8 billion KRW was used for material costs and subcontracting fees. The 17 billion KRW raised from the 2nd CB was used for employee wages at the new plant, loan repayments, and infomercial advertising expenses.

Looking at the performance in 2020 and 2021, sales decreased from 140.7 billion KRW to 124.7 billion KRW. Operating losses increased from 3.7 billion KRW to 34.8 billion KRW. Although sales decreased, selling and administrative expenses rose from 55.3 billion KRW in 2020 to 71 billion KRW in 2021. Among detailed items, commission expenses and advertising expenses increased. This appears to be due to increased costs related to promoting the health functional food business. The debt ratio rose from 68.88% at the end of 2020 to 199.06% at the end of 2021. As of the end of the first half of this year, the debt ratio was recorded at 230.48%.

SD Bioscience has planned to reduce the home shopping channel, which has high commissions, and focus on live commerce to improve its cost structure. It is improving its financial structure by minimizing expenses except for essential costs. Selling and administrative expenses in the first half of this year were 31.4 billion KRW, down from 37.3 billion KRW in the same period last year. Operating losses also decreased from 17.6 billion KRW to 15.5 billion KRW.

BNK Investment & Securities, the lead manager, expects that by raising funds through the rights offering, the increase in cash, capital stock, and capital surplus will lower the debt ratio and increase the current ratio, thereby improving financial stability.