[Edaily Reporter KIM SAE-MI ] MSEED, the largest shareholder of artificial intelligence (AI) diagnostics company Noul Co., Ltd.(376930), is facing repercussions from a repurchase agreement (RP) signed during its participation in a rights offering last year.

MSEED raised funds using its existing shares in Noul Co., Ltd. around the time of the rights offering, but as the number of shares subject to the RP continued to increase, more than 4 million shares were ultimately transferred to external financial institutions. As a result, MSEED’s stake in Noul Co., Ltd.—as the largest shareholder—plummeted from the 15% range at the end of 2024 to the 3% range recently.

Secured 220,000 new shares through a rights offering… RP’s stake stands at approximately 4 million shares

MSEED is a corporation based in San Diego, USA, and is controlled by Noul Co., Ltd.’s co-founders. It was established in November 2015, about half a month before the founding of Noul Co., Ltd.’s domestic entity, and was formerly known as “Noul, Inc.” Noul explained that MSEED is a nominal U.S.-based entity that does not conduct separate business operations and generates no revenue.

The rationale behind the co-founders’ decision to structure Noul Co., Ltd. such that MCD serves as the largest shareholder—rather than holding Noul Co., Ltd. shares solely in their personal names—and MCD’s current practical role have not been disclosed. The company declined to provide a specific statement on this matter, citing it as an internal matter of a separate legal entity.

MC Seed, the largest shareholder of Noul Co., Ltd., entered into a 1 billion won RP agreement with Daea Investment last year during Noul Co., Ltd.’s rights offering. An RP involves selling held shares and repurchasing them at a later date; Noul Co., Ltd. elaborated that this is “essentially a financing transaction in which shares are provided as collateral.”

At the time, MC Seed subscribed for 222,2096 shares—approximately 10% of the 2,229,690 shares allocated in the rights offering—at 1,788 won per share. The acquisition cost totaled approximately 400 million won. The company sold most of the remaining subscription rights.

Meanwhile, the number of MC Seed’s existing Noul Co., Ltd. shares tied up in the RP contract continued to rise. The number of shares subject to the contract, which stood at 899,280 at the start of the agreement, increased to 1,101,322 at the end of last year, 1,427,723 in March of this year, and 3,007,723 at the end of June, eventually swelling to 4,007,723. This was due to adjustments in the number of shares subject to trading based on stock price fluctuations.

Ultimately, when the MC Seed RP contract expired on the 19th of last month, 4,007,723 shares were definitively transferred to Daea Investment. This volume is approximately 18 times the 222,096 shares newly acquired through the rights offering.

Noul Co., Ltd. had already warned at the time of the rights offering regarding the RP agreement that, in the event of a stock price decline, additional shares might need to be provided or a cash settlement might occur, and that if the repurchase obligation was not fulfilled, the investor could dispose of the shares. The risk of a change in the largest shareholder’s stake, which was disclosed at the time, has effectively led to an actual reduction in that stake.

December Repurchase Scheduled but Ended Early in August… Background Undisclosed

A notable point is the timing of the RP contract’s termination. Although MC Seed’s original repurchase date was scheduled for December 3, the contract actually ended on the 19th of last month—about three and a half months ahead of schedule.

The personal holdings of CEO Im Chan-yang and Chief Production Officer (CPO) Kim Kyung-hwan, who participated in the same RP contract, were returned upon the contract’s expiration in June. In contrast, MC Seed’s holdings remained in the RP until they were ultimately transferred to Daea Investment.

Since Noul Co., Ltd. specified in its securities registration statement last year that the redemption date could be brought forward in the event of a breach of contract, the background behind this early termination is drawing attention. It has not been disclosed whether MC Seed failed to pay the redemption proceeds, whether contract terms linked to the stock price were triggered, or whether this was an early settlement based on mutual agreement between the two parties.

In response to an inquiry from Edaily, Noul Co., Ltd. stated, “EMRO., Incorporated, is a separate legal entity from Noul Co., Ltd., and the information you requested pertains to the internal affairs of that separate entity.” They added, “We disclose any matters requiring public disclosure in accordance with relevant laws and regulations, and we have no additional information to provide beyond what has already been disclosed.”

It also remains unclear whether the 4,007,723 shares now held by Daea Investment will be retained or sold. A representative of Noul Co., Ltd. stated, “Any specific decisions regarding the retention or sale of these shares, as well as the transaction details, pertain to Daea Investment’s investment decisions,” adding, “It is difficult for our company to separately verify or respond to specific transaction details.”

MC Seed Stake Drops from 15.48% to 3.77%… Control Weakens Sharply

As a result of the RP agreement, Noul Co., Ltd.’s stake in MC Seed has dropped sharply. MC Seed’s stake, which stood at 15.48% at the end of 2024, fell to 9.44% at the end of last year and further declined to 3.77% as of the 19th of last month. The stake held by the largest shareholder and its affiliates has also fallen to around 10.2%.

As the controlling shareholder’s stake decreases, it becomes increasingly difficult to defend management control. In Noul Co., Ltd.’s case, in particular, if the stake is further diluted through a paid-in capital increase or the exercise of stock options, the controlling shareholder’s proportion of voting rights could decline even further. The risk that the corporate governance structure could become unstable due to an increase in external shareholders’ stakes or changes in the interests of major shareholders is a cause for concern.

Regarding concerns about control resulting from the decline in the controlling shareholder’s stake, Noul Co., Ltd. stated, “The company’s management and corporate governance are currently operating normally,” adding, “We will continue to manage and review the necessary measures to ensure stable management and enhance corporate value over the medium to long term.”