[Reporter Reading Securities Report] Rights Offering Twice the Total Shares... 'Alphanox'

Existing 7.98 Million Shares... Newly Issued 14.4 Million Shares
"Large-Scale Paid-in Capital Increase After Capital Reduction... Concerns Over Share Dilution"
Raised 32.4 Billion KRW... "13.2 Billion KRW Debt Repayment"

Alphanox is conducting a rights offering that will issue more than twice the total number of its existing shares. Prior to this rights offering, Alphanox carried out a reverse stock split. From the shareholders' perspective, shareholder value continues to be diluted.

According to the Financial Supervisory Service's electronic disclosure system on the 24th, Alphanox plans to proceed with the rights offering through a shareholder priority public offering. A total of 14.4 million shares will be issued at 2,250 KRW per share. Through this, the company aims to raise 32.4 billion KRW, which is close to 1.5 times the market capitalization of 22.4 billion KRW as of the previous day. Alphanox is a medical device manufacturing and sales company established in 1995 and listed on the KOSDAQ market in 2000.

This rights offering is likely to cause frustration among shareholders. In June of this year, Alphanox decided on a reverse stock split, consolidating 10 common shares into 1 common share. As a result of the reverse split, the total number of shares decreased from 79,759,208 shares in September to 7,975,920 shares. Immediately afterward, the company proceeded with the rights offering. The number of shares to be issued this time is 14.4 million, which corresponds to 180.54% of the existing shares. This is a large volume. From an investor's perspective, since the rights offering follows the reverse split, share price dilution continues.

In its securities registration statement, the company stated that this is a "large-scale new share issuance" and warned that "at the time of additional listing of the new shares, there is a risk of share price dilution due to a large volume of shares being temporarily released, and investors cannot rule out the possibility of economic losses."

The purpose of fund usage is similar. Of the funds raised, Alphanox plans to use 13.2 billion KRW to repay borrowings. This includes 5.3 billion KRW for short-term borrowings, and 900 million KRW and 7 billion KRW for the redemption of the 13th and 14th convertible bonds (CB), respectively. This can be seen as repaying debt with shareholders' money. For reference, the 14th CB is held by MDS Intelligence, an affiliate of MDS Tech, the largest shareholder.

The remaining 19.2 billion KRW will be used as operating funds. Approximately 13.5 billion KRW will be spent on purchasing products and raw materials for the medical and healthcare business divisions, about 4.5 billion KRW on outsourcing processing costs, and around 1.4 billion KRW on research and development expenses.

This rights offering may be a necessary decision in some respects. Alphanox recorded a consolidated pre-tax loss from continuing operations of approximately 21.4 billion KRW last year, which is 112.26% relative to its equity. If the capital impairment rate exceeds 50% by the end of this year, the company will be designated as a management target.

In its securities registration statement, the company explained, "As of the end of the first half of 2024, the company is in a partial capital impairment state but does not meet the criteria for designation as a management target," adding, "If a net loss occurs in the third or fourth quarter, there is a risk of designation as a management target due to capital impairment." However, it also stated, "We believe that the risk of designation as a management target due to capital impairment can be reduced by capital expansion through a general public offering of unsubscribed shares after the rights offering and a reverse stock split."

The unclear improvement in Alphanox’s performance remains a concern. On a consolidated basis, Alphanox has recorded losses for three consecutive years from 2021 through last year. Sales increased slightly from 23.95109 billion KRW in 2021 to 26.87818 billion KRW last year, but operating losses grew from 6.16408 billion KRW to 14.12948 billion KRW. In the first half of this year, sales were 13.5654 billion KRW, a mere 3.32% increase compared to the same period last year. Operating losses continued at 2.88686 billion KRW.