[Funding] EV Advanced Materials Issues New Shares to Improve Financial Structure

Expected to raise 36 billion KRW
Used for loan repayment
Profitability worsens due to intensified competition in FPCB business
Capital reduction alongside to cover deficit

[Asia Economy Reporter Hyungsoo Park] EV Advanced Materials has decided to reduce its capital to improve its financial structure and is also planning a rights offering to existing shareholders. The company plans to repay more than 20 billion KRW of its debt.

According to the Financial Supervisory Service's electronic disclosure system on the 25th, EV Advanced Materials will issue 16.1 million new shares to raise 36 billion KRW. New shares will be allocated at a ratio of 0.25 shares per existing share. The planned issue price is 2,235 KRW, with the final price to be confirmed on January 19, 2023.

The rights offering gives existing shareholders the first opportunity to subscribe. New shares are allocated to existing shareholders, and any unsubscribed shares will be offered to the general public. Only subscription rights (preemptive subscription rights) are granted to existing shareholders, which differs from a rights offering that grants new share subscription rights.

Of the funds raised, 16 billion KRW will be used to repay debt. This will improve the debt ratio and liquidity ratio and reduce financial costs. The company plans to partially repay short-term loans from IBK Small and Medium Business for working capital and trade finance loans. 50 billion KRW will be used to repurchase the 6th series convertible bonds (CBs). The company has not yet decided whether to cancel or resell the repurchased convertible bonds.

EV Advanced Materials spends approximately 5.5 billion KRW monthly on other working capital such as auxiliary material purchases, labor costs, and machinery maintenance. As of the end of the third quarter this year, the company holds 3.6 billion KRW in cash equivalents on a separate basis. There is insufficient liquidity to meet supply contracts with major customers. About 14.9 billion KRW of the raised funds will be used as operating capital to produce flexible printed circuit board (FPCB) products.

The FPCB business of EV Advanced Materials is facing increasingly fierce competition among companies. With the slowdown in the smartphone market, which is the upstream industry, and poor performance of major customers, EV Advanced Materials’ profitability is deteriorating. The company recorded significant net losses in 2021 and 2022 due to impairment losses on investments in affiliates. On a consolidated basis, net losses were 9.3 billion KRW in 2021 and 8.1 billion KRW accumulated through the third quarter of 2022. Deficits increased to 17.2 billion KRW in 2021 and 25.4 billion KRW by the third quarter of 2022. To cover these deficits and improve its financial structure, the company resolved a 2-for-1 free capital reduction on the 9th of last month.

The record date for the free capital reduction is December 12, and stock trading will be suspended from December 9 until January 2 of next year. Since the record date for the rights offering is December 22, stock trading will be restricted around that date as well.

On a consolidated basis, EV Advanced Materials recorded sales of 43.6 billion KRW and an operating loss of 1.8 billion KRW through the third quarter of this year. Sales decreased by 14.5% compared to the same period last year, and the company turned to a loss.

To improve profitability, the company is expanding its business areas to include the development of FPCBs for electric vehicle electronics and lithium carbonate supply. On June 7, it invested 5 billion KRW in the 2nd series convertible bonds of Lithium Plus, a lithium producer. The company expects to strengthen cooperation for electric vehicle business expansion and generate profits through convertible bond investments.