[EcoPro Analysis] ① Will EcoPro Materials' IPO Plan Face Setbacks?

Suspicion of Illegal Stock Trading by Current and Former Executives of Ecopro
Prosecutors and Financial Authorities' Investigation Casts Doubt on This Month's IPO Preliminary Review Application
BRV Capital Led by LG's Eldest Son-in-Law CEO Yoon Kwan Is the Second Largest Shareholder

This year, the Ecopro Group, which had been rapidly increasing its corporate value, faced an unexpected setback. The prosecution and financial authorities launched an investigation after detecting signs that current and former executives and employees engaged in stock trading using undisclosed information. The plan to raise expansion funds through the initial public offering (IPO) of Ecopro Materials is also expected to face difficulties.

Unexpected Setback Amid Ecopro Materials' IPO Preparations

According to the financial investment industry on the 20th, the Joint Investigation Team for Financial and Securities Crimes of the Seoul Southern District Prosecutors' Office and the Special Judicial Police of the Financial Services Commission dispatched investigative personnel to Ecopro's headquarters in Cheongju, Chungbuk, over two days on the 16th and 17th, seizing internal documents and computer storage data. It is reported that additional evidence was found indicating that current and former Ecopro executives and employees obtained unfair profits by using undisclosed information around 2020?2021.

The Ecopro Group, which is building vertical integration related to cathode materials, established Ecopro Materials in 2017 to stably supply precursors to Ecopro BM. A precursor is a core material in cathode active material production that determines high capacity and long-life characteristics. In line with its founding purpose, Ecopro Materials built facilities at the Pohang campus capable of producing 50,000 tons of precursors annually, the largest scale in South Korea based on precursor production capacity. The company plans to expand production capacity to 200,000 tons annually by 2026. This is the reason for seeking funds through the IPO.

In 2021, Ecopro Materials recorded sales of 342.9 billion KRW, operating profit of 17.6 billion KRW, and net profit of 15.4 billion KRW. As the electric vehicle market grows, demand for secondary batteries has increased, and core material companies are rapidly expanding. The investment banking (IB) industry expects Ecopro Materials to raise several hundred billion KRW through the IPO.

Sung Yun-mo, Minister of Trade, Industry and Energy, is awarding the Gold Tower Order of Industrial Service Merit to Lee Dong-chae, CEO of EcoPro (right), at the 47th Commerce Day ceremony held on the afternoon of March 18, 2020, at the Korea Chamber of Commerce and Industry in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

Ecopro is the largest shareholder of Ecopro Materials, holding 69.3% of its shares. If BRV Capital Management, the second-largest shareholder, converts its preferred shares into common shares, Ecopro's stake will decrease to 51.4%, while BRV Capital's stake will increase to 28.9%. In November 2020, BRV Capital invested a total of 30 billion KRW in Ecopro Materials, acquiring 13.61 million preferred shares. It also holds common shares divided among funds, owning 1.4% and 2.8% respectively. Yoon Kwan, CEO of BRV Capital, is known to be the husband of Koo Yeon-kyung, CEO of the LG Welfare Foundation. Yoon is reported to hold shares in BRV Capital. Some of the profits BRV Capital earns from Ecopro Materials' listing could go to CEO Yoon.

Through the IPO, the Ecopro Group expected to raise investment funds and for financial investors (FIs) to recover a significant amount of cash, but the listing has become uncertain until the investigation results regarding the use of undisclosed information are released. Previously, Ecopro also faced turmoil in 2020?2021 due to allegations that current and former executives and employees gained unfair profits using undisclosed information. In March last year, Ecopro took a drastic step by replacing all internal board members to restore its damaged corporate image. However, with the regulatory authorities investigating again after about a year, the preliminary review application schedule is likely to be postponed.

Stock Prices of Three Ecopro Affiliates Surge Amid Institutional Selling

This year, the Ecopro Group has become a hot topic as the stock prices of its listed affiliates surged simultaneously. The combined market capitalization of the three companies?Ecopro, the holding company (10.3 trillion KRW), main affiliate Ecopro BM (19.6 trillion KRW), and environmental business Ecopro HN (1 trillion KRW)?exceeds 30.9 trillion KRW, surpassing POSCO Holdings (27.1 trillion KRW). This ranks just behind Naver (32.5 trillion KRW), the 9th largest in the domestic stock market. Since the beginning of this year, Ecopro's stock price rose 288%, Ecopro BM 117%, and Ecopro HN 49%. Jeonghwan Kim, a researcher at Korea Investment & Securities, explained, "The stock price rise was driven by concrete new investment plans from clients including Samsung SDI and expectations of long-term supply contracts. The increase in electric vehicle secondary battery installations by Samsung SDI and the rise in secondary battery shipments by SK On are factors improving Ecopro BM's performance."

The stock price rise of the three listed companies within the Ecopro Group this year resembles the simultaneous rise trend shown by the Celltrion trio in 2020. While institutional investors have shown net selling dominance and short selling continues, individual investors have actively recorded net purchases, driving the stock price up. Institutional investors have net sold 1.9 million shares of Ecopro and 3.26 million shares of Ecopro BM this year. The net selling amount was 574.7 billion KRW for Ecopro BM and 494 billion KRW for Ecopro, second only to Samsung Electronics (1.1898 trillion KRW). The net selling volume from institutions was absorbed by individuals, who net purchased 722.6 billion KRW and 462.9 billion KRW worth of Ecopro and Ecopro BM shares respectively this year. Foreign investors also showed net buying dominance, supporting the stock price rise.

With the stock prices of the three listed companies in the group surging simultaneously, the investment banking (IB) industry focused on the Ecopro Materials' listing schedule. It is expected that Ecopro Materials will file a preliminary review application for listing on the Korea Exchange's KOSPI market within this month. Mirae Asset Securities is the lead underwriter, and NH Investment & Securities is the joint underwriter.