[At a Crossroads] H&B Design① Merger and Capital Increase Continually Delayed... Management Normalization Faces Difficulties

Five Changes in Paid-in Capital Payment Date... Merger Also Stalled
Stock Price Plummets Amid Large-Scale Loss Accumulation

Capture of H&B Design homepage.

Concerns in the market are escalating as the rights offering and subsidiary merger of KOSDAQ-listed company H&B Design continue to be delayed.

According to the Financial Supervisory Service's electronic disclosure system on the 22nd, H&B Design decided on a third-party allotment rights offering worth 5 billion KRW on November 29 last year. The new shares are issued at a price of 1,772 KRW per share, which is a 10% discount from the reference stock price. The subscription target is 'AJ Asset Global.'

AJ Asset Global is the largest contributor to 'Mendels Limited Investment Association,' which currently holds 1,673,640 shares (13.19%) of H&B Design and is the largest shareholder. As of the end of the third quarter last year, AJ Asset Global (50.02%), Cellumed (23.71%), and Exergy21 (23.71%) were listed as contributors to this association.

If this rights offering is paid in, AJ Asset Global will secure an additional 2,821,670 shares, becoming the single largest shareholder of H&B Design.

However, the payment date for the rights offering has been postponed five times, drawing attention to whether the fundraising will be successful. Recently, as H&B Design faced lawsuits from some shareholders and other controversies, the stock price has fallen, causing setbacks in the rights offering. Currently, H&B Design's stock price has dropped to around 1,770 KRW, near the rights offering issue price.

Along with the rights offering, the subsidiary merger is also continuously delayed. H&B Design announced the merger with its subsidiary Daehan Construction on November 29 last year, along with the rights offering disclosure. H&B Design acquired 100% of Daehan Construction's shares for 20 billion KRW in August 2022. Daehan Construction is a company engaged in housing and plant construction. H&B Design stated that the merger with Daehan Construction aims to achieve external growth and profit generation.

According to the initial merger plan, Daehan Construction was supposed to complete the merger by February 8. However, the schedule has been changed three times, and the current merger date has been postponed to March 8. The company explained that the merger is delayed because it failed to comply with procedures related to creditors' objections.

With the continuous delays in the rights offering and merger, H&B Design remains in an unstable situation. As of the end of the third quarter last year, on a separate basis, H&B Design's accumulated operating loss was 3.3 billion KRW, expanding by about 97% compared to the same period last year. The net loss for the period surged by more than 248% to 12.9 billion KRW.

The reason for the expanded deficit is the increase in other expenses and financial costs. H&B Design reflected about 2.8 billion KRW in impairment losses from subsidiaries such as Aribio H&B and Forever NK. Including this, bad debt expenses and losses on disposal of subsidiary investment stocks reached 7 billion KRW. Additionally, interest expenses increased by about 3.9 billion KRW due to the issuance of convertible bonds (CB) and bonds with warrants (BW), a rise of approximately 227% compared to the previous year.

Meanwhile, H&B Design announced on the 20th that the injunction lawsuit to prohibit stock issuance and listing was withdrawn. However, the market consensus is that it cannot be assured since there have been cases in the past where lawsuits were withdrawn and then refiled.