[Funding] EID Raises Large-Scale Capital Increase to Purchase Real Estate

Raised 80.6 Billion KRW Through Public Offering
525 Billion KRW Invested in Real Estate Projects
New Business Development Amid Existing Segment Profitability Challenges

[Asia Economy Reporter Hyungsoo Park] Fuel retail company EID is officially entering the real estate development business. It plans to raise funds through a public offering of new shares to be used for the acquisition payment of land and buildings in Nonhyeon-dong, Seoul, and for the construction costs of officetels in Suwon City.

According to the Financial Supervisory Service on the 7th, EID will issue 222 million new shares to raise 80.6 billion KRW. The planned issue price per share is 363 KRW, and the final issue price will be confirmed on the 17th. Subscription will take place over two days from the 27th to the 28th.

EID's business divisions consist of fuel retail, secondary battery, and display sectors. As of the first half of this year, the sales proportions by division were 48.0%, 30.7%, and 21.3%, respectively. In the first half, the company recorded sales of 111.9 billion KRW and an operating loss of 2.4 billion KRW.

Among the business divisions, the fuel retail sector, which holds the largest share, saw its cost of sales ratio increase from 97.3% last year to 100.1% in the first half of this year. Due to the business structure, the high cost ratio continues, resulting in ongoing losses. EID does not purchase fuel directly from the four major oil refiners but buys from their dealerships. This leads to relatively higher fuel purchase prices and thus a higher cost ratio.

While the fuel retail business, EID's core division, has not generated profits, the company has been steadily pursuing new businesses. The secondary battery division started in the second half of 2019 after acquiring GI and KIT. Operating profit margins were 8.32% in 2019, 5.21% in 2020, and 0.80% in the first half of this year. The profit margin declined in the first half due to increased maintenance costs and raw material prices amid the COVID-19 pandemic. The company also entered the display business last year by acquiring EQCell.

EID is additionally preparing for a real estate development business. Of the funds raised through the public offering, 52.5 billion KRW will be invested in the real estate business division. The plan includes spending 14.4 billion KRW on construction costs related to officetel development in Yeongtong-gu, Suwon City, and 38.1 billion KRW for the acquisition payment of land and buildings in Nonhyeon-dong.

The company is progressing with plans to build a mixed-use officetel complex with a total of 261 units in Iui-dong, Yeongtong-gu, Suwon City. Including land and construction costs, a total investment of 39.5 billion KRW is planned. The company decided to proceed with this project considering the increased demand for officetels due to the relocation of the Gyeonggi Provincial Government and the extension of the Shinbundang Line, which is expected to raise real estate values. The land was acquired in March 2017, and construction began in September last year. Completion is targeted for October next year.

By the end of the first half, 19 billion KRW had been invested in the officetel construction. The remaining planned expenditure is 20.5 billion KRW, which will be covered by 6.1 billion KRW of internal reserves and the public offering funds.

After completion, the officetel is expected to generate approximately 1.9 billion KRW in annual rental income. The plan is to lease the property for about three years before selling the entire officetel complex.

On the 5th of last month, EID signed a contract to purchase land and buildings in Nonhyeon-dong, Gangnam-gu, Seoul, for 65.2 billion KRW. After acquiring the land, the company plans to construct neighborhood living facilities and office buildings on the site. The building will have a total floor area of 7,896.76㎡ (2,389 pyeong), with 18 floors above ground and 3 basement levels.

Of the acquisition payment for the Nonhyeon-dong land and buildings, the remaining balance of 38.7 billion KRW is scheduled to be paid on the 30th. 38.1 billion KRW of the public offering funds will be used for this payment. In addition to the land acquisition cost, the company anticipates spending 17.9 billion KRW on construction, 2 billion KRW on incidental expenses, and other costs as part of the project investment.

Due to the nature of the real estate development business, large-scale funds must be invested upfront for land acquisition and construction costs. Since profits occur after completion, there is a significant time gap between cost input and revenue generation. If the construction, leasing contracts, and sales do not proceed smoothly according to the existing business plan, it could impact EID's cash liquidity.

This content was produced with the assistance of AI translation services.