Samsung Biologics reaffirmed that its approximately 3 trillion won rights offering is a preemptive measure to complete a 15.4 trillion won (approximately $11.3 billion) investment plan scheduled through 2034, even as retail shareholders continue to push back. The company maintained its existing policy of revisiting shareholder return measures, including dividends, in three years.
On September 3, Samsung Biologics held an online briefing for retail shareholders to explain the background of the rights offering and its capital deployment plans. The company’s board approved a 3.0009 trillion won (approximately $2.2 billion) rights offering on August 28, structured as a shareholder-priority allocation with any unsubscribed shares offered to the general public. The new share issuance totals 2.27 million shares, representing 4.9% of existing shares outstanding. The stock fell 6.78% on the announcement day, reflecting concerns over shareholder dilution.
Of the proceeds, 2.7062 trillion won (approximately $2.0 billion) will be used to acquire PolyPeptide Group, a Swiss peptide contract development and manufacturing organization (CDMO), and 294.8 billion won (approximately $217.0 million) will fund the expansion of Plant 6 at the Second Bio Campus in Songdo, Incheon.
Yoo Seung-ho, executive vice president and head of Samsung Biologics’ management support center, said: “Since its founding, Samsung Biologics has consistently made preemptive investments to build production capacity and business infrastructure by anticipating industry and market growth. We intend to continue this growth approach, and we determined that now is the time to execute the next phase of investment to secure our mid- to long-term growth foundation.”
He emphasized that the rights offering is not simply to fund the PolyPeptide acquisition, but a decision that accounts for the full scope of mid- to long-term investments, including Plants 6 and 7, the Third Bio Campus, and expansion of U.S. production facilities.
15.4 Trillion Won Investment Through 2034
Samsung Biologics’ mid- to long-term investment plan is as follows:
Investment ItemScalePolyPeptide acquisitionApproximately 2.7 trillion wonPlant 6 and auxiliary facilities constructionApproximately 1.9 trillion wonPlant 7 expansionApproximately 1.8 trillion wonThird Bio Campus expansionApproximately 7 trillion wonU.S. production facility expansion700 billion wonADC, DP, and small-scale CDMO equipment investment1.34 trillion won
Note: Investment scale by segment as presented by the company at the briefing.
The company cited the high-interest-rate environment, maturity repayment burden, and concerns over reduced borrowing capacity as reasons for choosing a rights offering over debt. The company explained that if it were to borrow the full 3 trillion won, its debt-to-equity ratio would rise from the low 50% range to the high 80% range as of the first half of this year, and its reliance on borrowings would increase from single digits to the mid-20% range.
The company also said it determined that issuing corporate bonds at this time would have limited economic viability given the contraction in the public bond market. Going forward, the company plans to prioritize operating cash flow generation and strategic debt financing for investment capital to minimize shareholder dilution, and it stated definitively that there are no additional rights offering plans at present.
Yoo said: “As of the end of the first half, our cash on hand was approximately 2.2 trillion won (approximately $1.6 billion), but without the rights offering, we project a cash shortfall of approximately 500 billion won (approximately $368.0 million) by year-end. A significant portion of the planned investment through 2034 is scheduled to be executed in the first half, so we need to secure liquidity preemptively.”
Dividends to Be Revisited in Three Years
The live Q&A session focused on shareholder return policy, stock price support measures, the rationale for changing the funding structure for the PolyPeptide acquisition, and whether a stock split is under consideration. Retail shareholder discontent has been growing over the fact that a company maintaining a no-dividend policy has undertaken a large-scale rights offering.
In response, Yoo said: “We believe that securing our growth foundation first and translating that into improved earnings and corporate value is more important for enhancing shareholder value over the long term than short-term shareholder returns. We will revisit dividend and shareholder return policies in three years, taking into account future investment plans, cash generation capacity, and financial conditions.”
On the topic of a stock split, he said: “The most important priority for current management is to enhance the company’s competitiveness, execute investments as planned, generate profits, and maximize corporate value. Once we determine that corporate value has been sufficiently enhanced, we will actively consider a stock split at that time.”
Analysts: Contract Wins Are Key
Analysts assessed that while the new share issuance at 4.9% of existing shares limits dilution pressure, the larger-than-expected offering size has dampened investor sentiment.
In the short term, resolution of labor uncertainty and a resumption of new contract wins are identified as the keys to a stock rebound. Analysts noted that concrete progress is needed on order intake and utilization rates at the Songdo Plant 5 and the U.S. facility, antibody-drug conjugate (ADC) CDMO contracts, and the Plant 6 groundbreaking schedule.
Lee Ji-soo, an analyst at Daol Investment & Securities, said: “Future corporate value will depend on the investment returns from the raised capital and whether new contract wins resume.” Jung Yoo-kyung, an analyst at Shinyoung Securities, said: “The key is for Samsung Biologics to demonstrate progress on its 15.4 trillion won mid- to long-term capital expenditure plan.”