[At a Crossroads] Selvas AI① 79 Billion Won Capital Increase with Major Shareholder Participating 1 Billion Won

Shareholders' Rights Offering Amid Soaring Stock Prices
Minor Participation by Major Shareholder Raises Shareholders' Dissatisfaction

Selvas AI, a KOSDAQ-listed company, has taken advantage of the rising stock prices driven by the artificial intelligence (AI) theme to launch a large-scale rights offering. However, dissatisfaction is growing among general shareholders who must participate in the capital increase at a high price. In particular, controversy is intensifying as Kwak Min-cheol, CEO of Selvas AI and the largest shareholder, announced plans to subscribe to only about 10% of his allocated shares.

Mincheol Kwak, CEO of Selvas AI.

According to the electronic disclosure by the Financial Supervisory Service on the 14th, Selvas AI decided on a rights offering followed by a general public offering of unsubscribed shares worth 78.84 billion KRW. This capital increase involves issuing 4 million new shares, which corresponds to about 18% of the total shares before the increase.

The record date for new share allocation is set for 6 p.m. on the 26th. Shareholders registered in the shareholder registry as of that date will be allocated subscription rights for 0.1777008 new shares per existing share. The planned issue price is currently 19,710 KRW per share. The final issue price will be determined on June 1, depending on stock price trends.

Selvas AI is a specialized AI company. It possesses technologies enabling human-computer interaction (HCI) such as voice recognition, speech synthesis, handwriting recognition, and image recognition. Recently, it established a Metaverse Lab to expand its business into metaverse and non-fungible tokens (NFTs).

Selvas AI’s stock price surged as the AI theme swept the stock market. Earlier this year, OpenAI in the United States introduced the generative AI ‘ChatGPT,’ which sparked the AI theme. Riding this wave, Selvas AI’s stock price skyrocketed from the 6,000 KRW range to 37,000 KRW. This represents an increase of over 500% in just three months, a record high since Selvas AI’s listing in 2009.

As the stock price soared, Selvas AI’s valuation metrics deteriorated. As of the previous day, Selvas AI’s price-to-earnings ratio (PER) stood at 75.25 times. PER indicates how many times the current market capitalization is relative to the company’s net income; a higher value suggests overvaluation. According to Naver Securities, the average PER for the same industry is 14.97 times.

The price-to-book ratio (PBR), which shows how many times the market capitalization is relative to the company’s net assets, is also high at 9.23 times. This means that even if the company sold all its assets and converted them to cash, it would only recover about one-ninth of the current market capitalization.

With the stock price at historic highs, the decision to proceed with a rights offering has sparked dissatisfaction among shareholders. The high price of the capital increase imposes a heavy burden, and shareholders who do not participate risk dilution of the value of their existing shares.

Moreover, controversy is intensifying because the largest shareholder of Selvas AI plans to participate only partially in this capital increase. Currently, Kwak Min-cheol, the largest shareholder including related parties, holds 3,060,096 shares (13.60%).

According to the securities registration statement, Kwak and others plan to subscribe to only about 10% of the 543,782 shares allocated to them in this capital increase. Calculated at the planned issue price, this amounts to approximately 1 billion KRW, which is only 1.3% of the total capital increase amount. This has led to criticism that the remaining 77.8 billion KRW will be drawn from the pockets of general shareholders, undermining the justification for the capital increase.

In response, a Selvas AI official stated, “The largest shareholder’s participation plan in the capital increase is not yet finalized,” adding, “The scale will be confirmed after internal decisions are made.”

Meanwhile, Selvas AI plans to use 76.9 billion KRW of the capital increase proceeds for research and development (R&D) and marketing expenses in the fields of AI medical care, AI education, and AI metamorobility. The remaining 1.9 billion KRW will be used to repay borrowings.