EcoPro Materials to List Tomorrow... Controversy Over 'Jjogaegi' Arises

Confusion Amid Poor Performance, Overvaluation, and Padu Incident
EcoPro Emphasizes "Different from Padu Incident"

EcoPro Group's fourth IPO candidate, EcoPro Materials, will be listed on the 17th. However, with weak third-quarter earnings and ongoing controversy over the 'inflated IPO' of Padu, which was listed in August, confusion among public offering stocks seems to be intensifying. EcoPro Materials recorded sales of 240 billion KRW and an operating loss of 6.9 billion KRW in the third quarter. While sales increased by 33% compared to the same period last year, operating profit turned negative. The cumulative sales for the third quarter reached 764.1 billion KRW, with an operating profit of 8.6 billion KRW.

EcoPro Materials holds the largest precursor production capacity among domestic companies.

As of last year, EcoPro Materials' production capacity was 28,000 tons, double that of the second-ranked company, POSCO Future M (15,000 tons). Globally, it ranks 14th, and EcoPro Materials plans to expand its facilities with the funds raised from this public offering to increase capacity to 210,000 tons by 2027. In this case, it will rise to fifth place globally, following four Chinese companies.

It is also the first precursor-specialized company to be listed on the domestic stock market. EcoPro Materials selected POSCO Future M, L&F, and Cosmo Advanced Materials as comparable companies for pricing the public offering because it was difficult to find comparable companies domestically. These companies focus on cathode materials, resulting in a 6 to 20 times difference in cathode material production capacity and precursor production capacity depending on the company. Among the comparable companies, only the Chinese company CNGR is a specialized precursor company.

However, this led to controversy over overvaluation and failure to attract strong demand during the book-building process. It was observed that 80% of institutional investors offered prices below the desired price, making it difficult to maintain the lower limit of the public offering price (36,200 KRW). Subsequently, a full ban on short selling caused a brief rise in the stock price, barely maintaining the lower limit of the public offering price. There are also cautious concerns that about 20% of institutions, which received a large portion of the shares, might release a significant amount of shares after listing.

A securities firm official in charge of IPO operations said, "There are many issues such as the short selling ban, so there is great uncertainty about the stock price on the listing day," adding, "Complaints about overallotment are emerging among institutional investors, so there may be a release of shares on the listing day."

CEO Kim Byung-hoon: "There will be no shaking after inevitable growing pains"

CEO Kim Byung-hoon of EcoPro Materials.
Photo by Asia Economy DB

There is also controversy that Padu, an IPO predecessor, concealed poor second and third-quarter earnings when going public. Padu estimated its sales and operating profit at 120.294 billion KRW and 111 million KRW, respectively, to price its public offering. However, according to the quarterly report, third-quarter sales were 18.044 billion KRW, and operating profit was a loss of 34.41 billion KRW.

As EcoPro Materials also posted poor third-quarter results, it took swift action. CEO Kim Byung-hoon stated that they would expand production facilities and diversify sales channels using the public offering funds. According to the quarterly report, third-quarter sales were 240.09 billion KRW, with an operating loss of 6.9 billion KRW.

CEO Kim said, "In the third quarter, profitability was poor due to the burden of nickel intermediate inventory contracted at lower mineral prices and discount rates," but added, "Although short-term growing pains in the market seem inevitable, the long-term market direction remains unwavering. Crisis is an opportunity to distinguish the wheat from the chaff, and someday the sunshine hidden behind the dark clouds will appear," expressing confidence.

'Split IPO' also criticized as "damaging shareholder value"

Subsidiary listings are not welcome news for investors in the parent company because split IPOs damage the shareholder value of the parent company.

The background for subsidiaries proceeding with listings lies in the purpose of raising funds. A financial investment industry official said, "Due to poor business conditions, many are struggling with investments," adding, "There is no significant way to raise funds other than IPOs, so they are resorting to subsidiary listings as an alternative."

In cases of overlapping listings, discounts also occur in the parent company's stock price. However, as investors in the parent company have no clear countermeasures, they only express frustration. Regulatory authorities have improved various systems or strengthened disclosures as countermeasures, but opinions suggest that these efforts are still insufficient.

The Ministry of Justice announced plans to improve the stock purchase right system to strengthen protection for shareholders opposing physical division, but there are criticisms that shareholder protection measures are insufficient during the physical division process. Although financial authorities strengthened disclosures on physical division last year, there were criticisms that the shareholder protection measures were inadequate and might even provide a license for physical division.

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