Raised 18 Billion KRW Through Rights Offering
Most Funds Used for BW Redemption
Chairman Choi Byung-oh Participated in Only 10% of New Shares Allocation
Sales Plummeted Over Past 2 Years Due to COVID-19 Impact
[Asia Economy Reporter Hyungsoo Park] Hyungji I&C, one of the major affiliates of Fashion Group Hyungji, has put out the urgent fire through a rights offering. However, its sales volume, which shrank due to the COVID-19 pandemic, has remained stagnant for several years. After entering the Chinese market but failing to achieve results and withdrawing, and failing to find a breakthrough in the online market, its deficit continues to accumulate.
According to the financial investment industry on the 14th, Hyungji I&C's stock price fell to the limit down yesterday. The issuance of new shares through the rights offering led to a price drop. Hyungji I&C raised a total of 18 billion KRW this month through a rights offering to shareholders, securing funds for debt repayment and operating capital. For every one existing share, 0.96 new shares were allocated.
Hyungji I&C used the raised funds to repay 14.7 billion KRW of the 6th series bonds with warrants (BW). As the stock price fell below the warrant exercise price of 1,838 KRW, investors holding the BWs exercised their early redemption rights. At the end of the third quarter, Hyungji I&C had only 1.6 billion KRW in cash and cash equivalents. The board of directors decided to raise repayment funds through a rights offering. Chairman Choi Byung-oh, who lacked the capacity to participate fully in the rights offering, subscribed to only about 10% of the new shares allocated to him. After the offering, the shareholding ratio of the largest shareholder and related parties dropped from 53.7% to 30.4%.
Hyungji I&C’s deficit has increased as sales sharply declined due to the COVID-19 pandemic. Sales decreased from 102.1 billion KRW in 2019 to 67.1 billion KRW in 2020 and 65.5 billion KRW last year. Operating losses of 5.3 billion KRW and 2.9 billion KRW were recorded in 2020 and last year, respectively. As liquidity became insufficient, the company issued BWs through a public offering in June last year, raising 15 billion KRW. The funds raised through the BWs were used to repay debts and foster the online mall. Advertising was also conducted to increase overseas sales through Amazon, the world’s largest online shopping mall.
Despite large-scale fundraising and investments in overseas and online sectors, related sales remain stagnant. Overseas online sales in the third quarter of this year amounted to 12 million KRW, accounting for 0.2% of total sales. Hyungji I&C targeted the Chinese market centered on the fashion brand 'Bonzie Floor' in 2014 but withdrew in 2017 due to continued poor business performance. After focusing on the domestic business, it entered the U.S. and Japanese markets through Amazon starting in 2020. While failing to achieve concrete results in overseas sectors, it has been struggling with management difficulties due to the direct impact of the COVID-19 pandemic.
The financial structure has also deteriorated. The debt ratio increased from 181.6% in 2019 to 290.2% in the third quarter of this year. Although the debt ratio is expected to decrease by repaying BWs through the rights offering, there is no capacity for investment to secure new growth engines. Since the real estate owned is already provided as collateral, improving the profitability of existing brands is considered necessary.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
