[Listed Firms At A Crossroads] Lunit ① Turns Again to Shareholders... Owners Subscribe to Only 15%

250 Billion Won Rights Offering to Address CB Put-Option Risk
One-Year-Old 'No Capital Increase' Pledge Undermined... Management's 15% Participation Sparks Controversy

Lunit, a KOSDAQ-listed company, is conducting a rights offering to existing shareholders worth 250 billion won. The move comes as the share price has been weak, increasing the risk that the put options (early redemption rights) on its previously issued convertible bonds (CBs) will be exercised. In the market, criticism is mounting that investor confidence has deteriorated, as the company is once again turning to shareholders for funding and the largest shareholder and management are expected to subscribe to only 15% of their allotted shares.

According to the Financial Supervisory Service's electronic disclosure system on February 4, Lunit decided at the end of last month to carry out a rights offering to existing shareholders worth 250.3 billion won, with any unsubscribed shares to be offered to the general public. The planned issue price is 31,650 won, and 0.27 new share will be issued for each existing share. This means that an additional 27% of the current total number of shares will be issued.

The top priority for the funds raised is debt repayment. If early redemption is requested in the second quarter of this year for the first and second tranches of CBs, the company plans to use 98.5 billion won for that purpose and 39.3 billion won to repay short-term borrowings. The remainder will be used as operating funds, including for research and development.

Previously, in May 2024, Lunit issued the first tranche of CBs worth 166.5 billion won to acquire Lunit International (formerly Volpara). In the same month, it also issued the second tranche of CBs worth 5 billion won to secure operating funds. Lunit International is a New Zealand-based breast cancer screening software company. At that time, Lunit invested 252.5 billion won in the acquisition of this company.

The conversion prices of the first and second tranches of CBs are 52,846 won and 47,819 won, respectively. Conversion into shares has been possible since May last year, but no conversion requests have been made as Lunit's share price has remained sluggish. The put options (early redemption rights) on these CBs can be exercised starting this coming May. Lunit explained that, in preparation for potential exercise of these put options, it is raising funds through the rights offering equivalent to 50% of the total CB amount.

A Lunit official said, "We initially considered raising around 80 billion won by issuing convertible preferred shares (CPS) through a third-party allotment, but during discussions with investors, we were told that the roughly 200 billion won scale of put-option risk was weighing on the company's value and share price," adding, "In response, we decided on a public offering-style rights issue that can definitively resolve the financial risk and enhance shareholder value over the long term."

Market sentiment, however, is cold. Lunit already conducted a rights offering to existing shareholders worth 200 billion won in November 2023, just 1 year and 4 months after its listing, and at the regular general shareholders' meeting in March last year it stated that there were no short-term plans for another rights offering to existing shareholders. As the company has now announced another large-scale rights issue less than a year after making that pledge, voices in the market say trust in the company has been damaged.

On top of that, controversy is expected as it is known that Chairman of the Board Baek Seungwook, the largest shareholder, and CEO Suh Bumseok will subscribe to only about 15% of the shares allotted to them in this rights offering. In the first rights issue to existing shareholders in 2023, they subscribed to 100% of their allotment.

On this point, a Lunit official explained, "At the time of the previous capital increase, Chairman Baek and CEO Suh took out personal loans of 30 billion won at an annual interest rate of around 15%, and they are still bearing that financial burden," adding, "In the current capital increase, it is difficult for them to take on additional loans, but they are participating to the maximum extent possible in order to demonstrate their sense of responsibility and commitment to the company's growth and recovery."