SillaJen in talks with PEFs to issue new shares

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SillaJen aims to raise capital through third-party allocation by early next year

By Anna J. Park

Korean biopharmaceutical company SillaJen is aiming to attract strategic investors to overcome the firm's current crisis.

According to industry sources, negotiations are underway between SillaJen and interested strategic investors, as the firm plans to raise capital by issuing new stocks accounting for around 15 percent of its current shares for third-party allocation.

A few pharmaceutical companies and private equity firms (PEFs) are said to have shown interest in becoming the firm's major shareholders by acquiring the new stocks.

The company is facing the looming possibility of delisting from the tech-heavy Kosdaq market as its stock trading had been halted since early May this year on the grounds that the firm's former executives were arrested on charges of embezzlement and breach of duty.

After months of deliberation, the nation's bourse operator Korea Exchange (KRX) decided at the end of November to give the firm another one-year grace period to improve its management instead of delisting the firm from the bourse. However, it could still be kicked out of the market if it fails to improve substantially during the period.

While the firm's stocks are still suspended from trading on the bourse, the biopharmaceutical company ― which had been the second-largest market cap company listed on the Kosdaq ― hopes to see a possible change in the company's ownership structure through the capital increase of third-party allotment sometime in the first half of next year.

Given that SillaJen's market cap stands at around 866.5 billion won ($793 million) with the suspended stock price, the planned capital raise of 15 percent of new shares would amount to at least tens of billions won. If the bio firm succeeds at raising capital by early next year as it aims to, it could be liberated from being designated by the KRX as a special supervisory stock item. The KRX designates companies at risk of capital impairment under the special supervision.

Ongoing trials with the firm's former CEO and key executives also leave the firm with few choices other than raising new capital to improve its status. The company's former CEO Moon Eun-sang was arrested in May, as he allegedly sold millions of shares worth 250 billion won just before the public announcement of a failed clinical trial result. Trials on him are still ongoing, while the company's other former key executive on charges of insider trading saw a “not guilty” verdict in his first trial earlier this month.

“We cannot wait for too long for the trial verdict on former CEO Moon to be made; the company reached a conclusion that capital increase through third-party allocation would be most realistic,” a company official said. “We hope to secure the firm's management transparency through the capital increase by sometime around early next year.”

To completely shake off the risk of delisting, SillaJen will have to go through another evaluation process by the KRX next November, proving the company's improvement in both management and fiscal soundness.