[Governance] SGC Energy, Vice President Lee Woo-sung Becomes Largest Shareholder with 46 Billion Won②

3-Generation Succession Plan Prepared for 15 Years
Acquired Affiliate Shares Worth 46 Billion KRW... Current Value Increased 6x to 285 Billion KRW
Gunjang Energy Accelerates Growth with OCI's Support

SGC Energy (formerly Samkwang Glass) transformed into a holding company structure last year through a three-party merger. In the process, Lee Bok-young, chairman of SGC Energy and second-generation of the OCI Group, made his two sons the largest shareholders of the holding company without spending a single penny. How was this possible, and who ultimately bore the costs associated with the succession?

[Asia Economy Reporter Jang Hyowon] The key to SGC Energy's three-party merger was Gunjang Energy. Lee Woo-sung, vice president of SGC Energy (43), the eldest son of Chairman Lee Bok-young, and Lee Won-jun, executive director of SGC Solution (formerly Samkwang Glass Glass Division) (38), the second son, held significant shares in Gunjang Energy, enabling them to secure a large stake in SGC Energy after the merger.

Their succession process is understood to have been steadily carried out since 2006, 15 years ago. Over that period, the two sons purchased shares in SGC Energy affiliates worth approximately 46 billion KRW, which allowed them to control SGC Energy, with total assets amounting to about 2.6 trillion KRW.

Acquisition of Gunjang Energy Shares Conceded by E-Tech Construction and Samkwang Glass

It is estimated that Vice President Lee Woo-sung and Executive Director Lee Won-jun first acquired shares in Gunjang Energy around 2006. Gunjang Energy, established by Chairman Lee Bok-young in 2001 with a capital of 50 million KRW, began constructing a combined heat and power plant in Gunsan, Jeonbuk, starting in 2006.

At that time, Gunjang Energy conducted a paid-in capital increase to finance the power plant construction. In January 2006, it raised 30 billion KRW through capital increases targeted at affiliates E-Tech Construction and Samkwang Glass, followed by three additional capital increases of 2 billion KRW each, raising a total of 36 billion KRW by September 28, 2006. Up to this point, only Samkwang Glass and E-Tech Construction participated in the capital increases.

However, in December 2006, when Gunjang Energy conducted a 6 billion KRW shareholder allocation capital increase, E-Tech Construction and Samkwang Glass forfeited 4.2 billion KRW worth, or 840,000 shares. At that time, E-Tech Construction and Samkwang Glass held current assets of about 170 billion KRW, so they had the financial capacity but chose not to participate in the shareholder allocation.

It is presumed that Vice President Lee and Executive Director Lee acquired the forfeited shares at this time. They were 28 and 22 years old, respectively.

Later, in March 2008, Gunjang Energy conducted an additional 10 billion KRW shareholder allocation paid-in capital increase, which E-Tech Construction and Samkwang Glass again did not participate in. It is also presumed that Vice President Lee and Executive Director Lee acquired shares at this time.

According to Gunjang Energy's 2019 business report, Vice President Lee and Executive Director Lee held 12.15% and 12.23% of shares, respectively. Thanks to the concessions from E-Tech Construction and Samkwang Glass, they secured about 24% of Gunjang Energy's shares for approximately 12.7 billion KRW.

[Graphic·Analysis]=Im Hee-jin

OCI's Support... Gunjang Energy's Value Soars 12-Fold

Since the completion of the combined heat and power plant in 2008, Gunjang Energy has rapidly grown by supplying steam to the Gunjang Industrial Complex. After recording sales of 89.9 billion KRW in its first year, sales surpassed 500 billion KRW in 2017. Over 12 years until 2019, the average annual sales growth rate reached 18.5%. Operating profit margins consistently ranged between 20% and 30% annually.

The rapid growth of Gunjang Energy was backed by OCI. OCI is a related company to SGC Energy. The late Chairman Lee Soo-young of OCI Group and Chairman Lee Bok-young of SGC Energy are brothers.

From the early days of Gunjang Energy's establishment, OCI accounted for a significant portion of its sales. In 2008, 30.1% of Gunjang Energy's sales came from OCI. This sales ratio increased to 48.9% in 2011, peaked, and then gradually declined. OCI served as a strong supporter for Gunjang Energy.

Thanks to OCI's assistance, at the time of the three-party merger among Samkwang Glass, E-Tech Construction, and Gunjang Energy last year, Gunjang Energy was valued at approximately 650 billion KRW. The value of the Gunjang Energy shares held by Vice President Lee and Executive Director Lee grew more than 12 times in 12 years, from 12.7 billion KRW to 157.7 billion KRW. This was the foundation that allowed Vice President Lee to become the largest shareholder of the holding company SGC Energy after the three-party merger.

[Graphic·Analysis]=Im Hee-jin

Shares Purchased from OCI... 46 Billion KRW → 285 Billion KRW

Vice President Lee and Executive Director Lee have also gradually accumulated shares in Samkwang Glass and E-Tech Construction over time, in addition to Gunjang Energy.

The first instance was in 2008 when OCI (formerly Dongyang Steel Chemical) transferred 486,000 shares of Samkwang Glass to Vice President Lee and Executive Director Lee. The price per share was 29,650 KRW, costing a total of 14.4 billion KRW to acquire the stake.

In 2013, OCI additionally transferred 315,000 shares of Samkwang Glass to them and Lee Bok-young's eldest daughter, Lee Jeong-hyun. The price per share was 41,750 KRW. Vice President Lee and Executive Director Lee acquired 182,800 shares and 126,000 shares, respectively, at a total cost of 12.9 billion KRW. Vice President Lee also made small purchases of Samkwang Glass shares on the open market in 2018.

Only Vice President Lee holds shares in E-Tech Construction. These shares were also transferred from OCI in 2013, amounting to 144,008 shares at 38,500 KRW per share, totaling about 5.5 billion KRW.

The original acquisition cost of shares in Samkwang Glass, E-Tech Construction, and Gunjang Energy by Vice President Lee and Executive Director Lee is estimated at approximately 46 billion KRW. Currently, based on the previous day's closing price, the value of their shares in the holding company SGC Energy is about 285 billion KRW. With OCI's help and the three-party merger, they have increased their share value more than sixfold.