Isupetasis, What the 3% Acquisition Fee Means

NH Investment & Securities, Shinhan Investment Corp., and Shinyoung Securities Sign Agreement to Acquire Remaining Shares
Risk Considered Low When Disposing Remaining Shares
18-20% Fees Proposed for KOSDAQ Listed Companies

Isu Petasys lost trust from investors due to the 'owl disclosure' controversy, but the underwriters and the underwriting consortium judged that the risks related to the capital increase are not significant. The level of risk perceived by the underwriting consortium can be gauged by looking at the forfeiture fee when signing the standby underwriting agreement.

According to the Financial Supervisory Service's electronic disclosure system on the 21st, Isu Petasys signed a standby underwriting agreement with NH Investment & Securities as the lead underwriter, along with Shinhan Investment Corp. and Shin Young Securities. They agreed to pay a forfeiture fee of 3.0% of the standby underwriting amount.

Isu Petasys will issue 20,103,080 new shares to raise 549.8 billion KRW. The funds raised will be used for 250 billion KRW in facility funds and 299.8 billion KRW for acquiring carbon nanotube manufacturer JO.

The planned issue price for the new shares is 27,350 KRW, and the public offering price will be finalized on February 3 next year. Considering the previous day's closing price of 22,750 KRW, the new share issue price may be lower than planned. The fundraising scale is also likely to decrease. If the amount raised falls short of the plan, the company will use its own cash reserves and borrowings from financial institutions as resources.

Since the news of the capital increase was announced, Isu Petasys's stock price has fallen by 38%. Even considering that the KOSPI fell by 4% during the same period, the market-relative return is -34 percentage points (P), which is poor. This explains why the planned issue price, calculated based on the trading day before the board resolution date, is higher than the current stock price.

Isu Petasys will allocate 600,000 new shares to the employee stock ownership association, and the remaining shares will be allocated to existing shareholders at a ratio of 0.31 shares per share held. The record date for new share allocation is next month on the 17th. The subscription date for the employee stock ownership association is February 6 next year, and the subscription period for existing shareholders is from February 6 to 7. The subscription competition rate of the employee stock ownership association may affect the subscription by existing shareholders. If forfeited shares occur after the existing shareholders' subscription, investors will be recruited through a general public offering subscription. If there are still remaining shares after that, the underwriting consortium will step in.

If a large volume of remaining shares occurs, the burden on the underwriting consortium may increase. The underwriting consortium, which must dispose of the new shares, will have no choice but to sell at a loss if the volume of remaining shares is large. Therefore, if the risk is judged to be high, the underwriting fee is set higher. Currently, the forfeiture fees for Kumyang and Eoflow, which are undergoing capital increases, are 20% and 18%, respectively. Daehan Optical Communications also signed a standby underwriting agreement with KB Securities with a forfeiture fee of 18%.

In the case of Isu Petasys, considering that it is a large-scale capital increase and ongoing opposition from minority shareholders, the forfeiture fee of 3% is not considered high. A financial investment industry insider explained, "The underwriting consortium likely judged that they could sell the remaining shares at the new share issue price level during the process of acquiring and disposing of the remaining shares," adding, "Once the uncertainties related to the capital increase and the JO acquisition disappear, the possibility of further decline after the new shares are listed is not high."

Contrary to the optimistic judgment of the underwriting consortium, the research center analyzing Isu Petasys lowered its target price. Park Sang-hyun, a researcher at Korea Investment & Securities, pointed out, "A capital increase accompanied by shareholder value dilution cannot be rationalized solely on the grounds of entering new businesses to break away from the single business structure of multi-layer printed circuit boards (MLB)." He added, "Due to the recent sharp decline in stock price, the capital raised through the capital increase is likely to decrease from 550 billion KRW to around 400 billion KRW." He further explained, "Since the 300 billion KRW for acquiring JO shares is a fixed amount, if the raised amount decreases, the amount flowing into MLB facility investment will be reduced," and "ultimately, most of the capital raised through the capital increase will be used for the JO acquisition."

Korea Investment & Securities lowered Isu Petasys's target price by 43.5%, from the previous 62,000 KRW to 35,000 KRW.