[Edaily Reporter NA EUN-KYUNG ] Lunit Inc.(328130)is issuing 47.7 billion won in new convertible bonds (CBs) to refinance existing high-interest CBs and secure working capital. This measure is intended to reduce the burden of repaying funds raised for the 2024 acquisition of Volpara and to stabilize the company’s financial structure.

Lunit Inc. announced on the 4th that it has decided to issue its third series of bearer, unsecured, private placement convertible bonds (CBs) worth 47.7 billion won. The new CBs have a nominal interest rate of 0% and a guaranteed yield to maturity of 4% per annum. The payment date is the 12th of this month, and the maturity date is November 12, 2031.

The existing convertible bonds were issued with a coupon rate of 1% and a guaranteed yield to maturity of 8% per annum. With the new convertible bonds, the coupon rate has been lowered to 0%, eliminating the burden of regular interest payments, and the guaranteed yield to maturity has been reduced by half. Lunit Inc. expects this to alleviate the financial burden associated with its existing acquisition financing.

According to the disclosure, 38.83 billion won of the proceeds from the new convertible bond issuance will be used to repay debt, and 8.87 billion won will be used for working capital. Since the decision to issue the bonds was made immediately after the redemption of the existing convertible bonds, this move is essentially a replacement of high-interest debt with convertible bonds bearing a relatively lower interest rate.

This fundraising effort stems from the May 2024 acquisition of Volpara Health Technologies (now Lunit Inc.), a global breast cancer screening platform company. At the time, Lunit Inc. issued a total of 171.5 billion won in convertible bonds to secure approximately 260 billion won in acquisition funds. The first tranche of 166.5 billion won was used for the Volpara acquisition, while the second tranche of 5 billion won was used as working capital to expand overseas operations.

Subsequently, as the stock price fell, the likelihood of early redemption rather than conversion of the existing convertible bonds came to the fore, prompting Lunit Inc. to seek additional funding. Last January, the company decided to conduct a rights offering and ultimately raised 211.5 billion won. During the rights offering, 7,906,816 new shares were issued, and the subscription rate among existing shareholders reached 104.7%.

Initially, Lunit Inc. had allocated 98.5 billion won of the funds raised through the rights offering to the redemption and repurchase of existing convertible bonds. However, the actual amount spent on redemptions and repurchases, including interest, totaled 164.5 billion won—66 billion won more than planned. The company explained that it decided to issue new convertible bonds to meet the resulting additional funding needs and reduce its financial burden.

To date, the principal amount of existing convertible bonds that Lunit Inc. has redeemed or directly repurchased totals 139.5 billion won, representing approximately 81% of the initial issue principal of 171.5 billion won. The principal amount redeemed through the exercise of early redemption rights was 92.0 billion won, while the principal amount directly repurchased by the company was 47.5 billion won. The remaining principal of the existing convertible bonds is approximately 32.0 billion won.

Lunit Inc.’s financial capacity has also expanded following a rights offering. As of the end of June, cash and cash equivalents on a consolidated basis stood at 154.5 billion won, a significant increase from 14.1 billion won at the end of last year. Adding approximately 27.4 billion won in current financial assets measured at fair value through profit or loss brings the total to 181.9 billion won. However, this figure does not reflect cash outflows resulting from convertible bond redemptions or operating activities that occurred after the end of the first half of the year.

Lunit Inc. emphasized that it has continued to achieve both revenue growth and improved profitability following the acquisition of Volpara. Revenue in the cancer diagnostics business segment increased approximately fourfold, from 18.3 billion won in 2023 (prior to the acquisition) to 72.8 billion won last year. The company explained that its business scale expanded by combining Lunit Inc.’s artificial intelligence (AI) technology with Volpara’s global customer base.

In terms of profitability, the EBITDA loss decreased by approximately 47%, from 27.6 billion won in the first half of 2024 to 14.6 billion won in the first half of this year. However, the consolidated operating loss for the first half of this year stood at approximately 29 billion won, indicating that the company remains in the red; therefore, improving operating cash flow remains a key challenge for securing financial stability.

Meanwhile, the conversion price for the new convertible bonds is 15,303 won per share. If converted in full, 3,117,035 common shares will be issued, representing 4.02% of the total number of issued shares. The conversion price may be adjusted down to 70% of the initial price in the event of a decline in the stock price, and investors may request early redemption starting in November 2028, two years after issuance.

Lunit Inc. officials explained, “This convertible bond (CB) issuance is intended to refinance existing high-interest CBs and reduce the burden of financial costs,” adding, “Although working capital is included in the disclosure, since the funds will be raised after the CBs are redeemed and canceled, the actual purpose is to refinance the existing CBs.”