[Reporter Reading Securities Report] Jinyang Chemical Raises Funds Again Amid Worsening Financial Structure

Funding Resumed Since 2022
"Most of the Raised Funds Used for Loan Repayment"

Jinyang Chemical, one of the KPX Group companies, has resumed fundraising since 2022. This time, it is not for facility investment but for debt repayment. Jinyang Chemical's financial structure is deteriorating due to declining performance every year.

According to the Financial Supervisory Service's electronic disclosure system on the 19th, Jinyang Chemical plans to conduct a paid-in capital increase through a rights offering followed by a general public subscription of forfeited shares. 5.4 million new shares will be issued at 2,250 KRW per share. Through this, it plans to raise 12.2 billion KRW in funds.

Jinyang Chemical is a company that manufactures flooring materials, synthetic leather, tarpaulin, and automotive fabrics. Its major customers are Kolon Glotech and Jinyang Sangsa. It supplies automotive synthetic leather to Kolon Glotech and flooring materials to Jinyang Sangsa.

Previously, in 2022, Jinyang Chemical raised 10.6 billion KRW through a rights offering paid-in capital increase. At that time, all the raised funds were used for facility investment. The purpose was to replace old equipment with new facilities to improve quality and expand production capacity.

However, this paid-in capital increase is quite different from the previous one. It is solely for debt repayment, not for investment. Jinyang Chemical will use 8.2 billion KRW of the 12.2 billion KRW to repay a loan borrowed from Woori Bank. Another 1.8 billion KRW will be used to repay accounts payable, and the remaining 2.1 billion KRW will be used to purchase raw materials. Essentially, 10 billion KRW will be used to pay off debt.

The reason for using most of the funds for debt repayment is due to the deteriorated financial situation. Jinyang Chemical has been experiencing poor performance for several years. Sales, which were 34.785 billion KRW in 2021, have continuously decreased, recording 28.281 billion KRW last year.

Operating losses also continued during this period. In 2021, it recorded an operating loss of 3.856 billion KRW, and last year it was 2.147 billion KRW. This marks three consecutive years. In the first half of this year, sales were 12.99398 billion KRW, and operating loss was 1.37223 billion KRW. Compared to the same period last year, sales decreased by 13.12%, and the operating loss widened.

As the poor performance continued, the debt dependency ratio, which was 0.91% in 2021, rose to 17.26% in the first half of this year. During the same period, the debt ratio also jumped from 32.54% to 54.09%. In particular, cash and cash equivalents remain at only 581.59 million KRW.

If the fundraising proceeds as planned, Jinyang Chemical is expected to reduce its debt dependency and interest expenses. According to the securities registration statement, "As the scale of borrowings expanded, the annual interest expense borne by Jinyang Chemical increased from 10 million KRW in 2022 to 150 million KRW in 2023," and "the company intends to pay principal and interest on borrowings, reduce financial burdens, and improve liquidity and financial stability indicators."

It is expected that the largest shareholder's stake will not decrease due to this capital increase. Jinyang Holdings, the largest shareholder of Jinyang Chemical, holds a 67.30% stake. Jinyang Holdings plans to participate in the subscription for more than 100% in this capital increase.