[At a Crossroads] Foodnamu① Ranking Dakcom and New Business Slump: '78 Billion Debt' Time Bomb

Current Liabilities 78 Billion Won... Debt Ratio Exceeds 700%
Large Losses in Subsidiaries and Uncertain Loan Recovery

Foodnamu, the operator of the convenient health food platform ‘Ranking Dakcom,’ is facing a liquidity crisis. It is analyzed that this is due to continuous large-scale deficits caused by aggressive borrowing to pursue new businesses.

According to the Financial Supervisory Service's electronic disclosure system on the 9th, Foodnamu's current liabilities on a consolidated basis at the end of the first quarter of this year amounted to 78 billion KRW. This is an increase of 23.4 billion KRW from 54.6 billion KRW at the end of last year, a 43.8% rise in about three months.

As a result, the current ratio sharply dropped from 104% to 67%. The current ratio is an indicator used to assess a company's ability to pay its obligations, with a higher ratio indicating healthier financial liquidity. Generally, companies maintaining a ratio above 200% are considered stable.

Looking into the current liabilities in detail, exchangeable bonds (EB), convertible bonds (CB), and convertible preferred stock liabilities (CPS) worth 19.5 billion KRW were newly classified as current liabilities in the first quarter. Foodnamu issued 6.5 billion KRW worth of EB in February 2022, 8 billion KRW worth of CB in November last year, and 5 billion KRW worth of CPS in December last year. Until now, these bonds were listed under non-current liabilities.

The reason these bonds were reclassified as current liabilities is that they can be redeemed or converted within one year. In the case of EB, the shares of Foodnamu’s subsidiary, cultured meat development company FN Fresh, are the exchange target. In 2022, Foodnamu valued the newly established FN Fresh at 34 billion KRW and issued 6.5 billion KRW worth of EB on the condition of exchanging 20% of the company’s shares.

However, FN Fresh has recorded large-scale deficits every year since its establishment and was in a state of capital erosion as of the end of the first quarter this year. From the EB investors’ perspective, the value of the exchange target shares has become worthless. Moreover, the early redemption right (put option) for this EB is only exercisable from 2026, making immediate principal recovery difficult.

Accordingly, on the 1st, EB investors requested Foodnamu to add an ‘Event of Default (EOD)’ clause. This clause requires immediate repayment of principal and interest if Foodnamu fails to repay other debts or if the information disclosed by the issuing company is found to be false.

Not only the EB but also the CB is problematic. The conversion price of the CB is 7,253 KRW, which is much higher than Foodnamu’s current stock price of around 3,100 KRW. Conversion requests can be made starting November 10, but given the current stock price, conversion is unlikely. CB investors can exercise the put option from May next year. However, this CB also includes an EOD clause, raising the possibility of a chain default if other debts are not fulfilled.

General borrowings are also a burden. As of the end of the first quarter this year, Foodnamu’s short-term borrowings amounted to 39.1 billion KRW. This sharply increased from zero in 2021 to 25.2 billion KRW in 2022 and 37.1 billion KRW at the end of last year. Long-term borrowings also accumulated to 18.7 billion KRW by the first quarter.

Foodnamu had almost no debt until 2021, operating close to a debt-free management style. However, as it pursued various new businesses, borrowings have continuously increased since 2022. A significant portion of the funds raised through debt was actually funneled to subsidiaries.

As of the end of the first quarter, loans to Foodnamu’s subsidiaries amounted to 28.9 billion KRW. The largest amounts went to FN Fresh with 20.4 billion KRW and FN Honesty with 6.2 billion KRW. However, like FN Fresh, FN Honesty is also in a state of capital erosion due to accumulated deficits. This is why the market views the recovery of loans to these subsidiaries as uncertain.

In this situation, Foodnamu needs to generate profits from its business to repay borrowings, but that seems unlikely. At the end of last year, on a consolidated basis, Foodnamu recorded sales of 190.7 billion KRW and an operating loss of 17.8 billion KRW. Sales decreased by 12.2% compared to the previous year, and operating losses expanded by 747% to 17.8 billion KRW. The deficit trend continued into the first quarter of this year. Accumulated losses have reduced capital, and the debt ratio surged from around 216% in 2022 to 727% in the first quarter this year.

Foodnamu was contacted for comment but did not respond.