[At a Crossroads] Clinomics① Despite 'Bomb' Rights Offering and CB, Cash in Hand Remains Minimal

326 Billion Raised but Remaining Cash is 6.8 Billion
Large Potential Stock Volume... Hotel Operations Suspended

KOSDAQ-listed company Clinomics has issued a paid-in capital increase and convertible bonds (CB) worth 32.6 billion KRW, but it appears that it barely secured any cash. This is because the raised funds were used to acquire a hotel and repay existing loans. Moreover, since the hotel has not been operating since the COVID-19 pandemic, its profitability remains uncertain.

According to the Financial Supervisory Service's electronic disclosure system on the 9th, Clinomics announced that on the 24th of last month, its largest shareholder changed from Park Jong-hwa and five others to Geno Investment Association No.1. Geno Investment Association No.1 became the largest shareholder by subscribing to a third-party allotment paid-in capital increase worth 7.6 billion KRW on the same day, securing a 12.99% stake in Clinomics.

Clinomics is a company engaged in developing and commercializing genome-based biohealth information processing, technology for simultaneous detection of circulating tumor cells (CTC) and cell-free DNA (cfDNA) in blood, and multi-omics analysis technology for early diagnosis services of cancer and diseases.

Last year, it recorded consolidated sales of 11.4 billion KRW and an operating loss of 34.6 billion KRW, resulting in a large deficit. Accordingly, the audit firm pointed out, “There is significant doubt about the company's ability to continue as a going concern, as it may not be able to repay its debts through normal business operations,” and added, “The uncertainty will be resolved only if management improvement and fundraising are achieved this year.”

Due to this crisis, Clinomics began pursuing a paid-in capital increase from December last year. Initially planned at 15 billion KRW, it was decided that only Geno Investment Association No.1 would invest 7.6 billion KRW after failing to find other investors.

After Geno Investment Association No.1 became the largest shareholder, Clinomics acquired 100% equity of a corporation called New Oriental Hotel Co., Ltd. on the 3rd. This corporation operates the New Oriental Hotel located in Myeongdong, Seoul. The hotel has not been operating since the COVID-19 pandemic. Clinomics acquired the corporation based on the real estate value of 18.4 billion KRW.

Of the 18.4 billion KRW, Clinomics paid 5.4 billion KRW in cash and issued the 2nd tranche of CB worth 13 billion KRW as substitute payment. This means that 70% of the cash raised through the capital increase was spent within a few days.

Using the newly acquired New Oriental Hotel as collateral, Clinomics issued the 3rd tranche of CB worth 12 billion KRW. The recipients are affiliated companies of the Shinhan Group, including Baro Savings Bank and Baro F&Loan. The nominal interest rate is 3%, and the maturity interest rate is 9%. Of these funds, 7.4 billion KRW is planned to be mostly used to repay existing debts of the New Oriental Hotel.

In the end, Clinomics raised a total of 32.6 billion KRW through a 7.6 billion KRW paid-in capital increase and 25 billion KRW in CB issuance, but only 6.8 billion KRW in cash remains. This is about 20.8% of the total raised amount. Meanwhile, if the convertible shares from the paid-in capital increase and CB are combined, a total of 18,640,731 new shares could be issued to the market. This represents 56% of the existing total shares, a large volume that effectively dilutes minority shareholders' stock value.

The market is focusing on the profitability of the acquired hotel. The New Oriental Hotel recorded sales of 1.8 billion KRW and net profit of 100 million KRW in 2019, before the pandemic. In 2018, it posted sales of 1.7 billion KRW and net profit of 40 million KRW. Even if operations resume, these results would make it difficult to cover the interest on the 3rd tranche CB.

Accordingly, Clinomics plans to invest an additional approximately 1 billion KRW to remodel the hotel's second-floor caf? into an anti-aging clinic. A company representative stated, “We plan to reopen the hotel before the peak season in July to August and open an anti-aging clinic based on genome 2.0 technology in the second half of this year to generate profitability,” adding, “If we do not achieve a turnaround this year, the company will face an existential crisis, so we plan to generate results through genome technology and proceed with additional paid-in capital increases.”