Isuke, Isu Exacem Business Division Merger... Only Chairman Kim Sang-beom Smiles

Debt Ratio Rises from 90% to 157% After Merger
Most Debt Transferred to Isu Exachem
Chairman Kim Sang-beom Strengthens Control
Debt Burden Significantly Reduced
Isuke Financial Structure Expected to Deteriorate

Kim Sang-beom, Chairman of Isu Group.

Isu Specialty Chemical will absorb and merge the business division of Isu Exachem, a personal company of Kim Sang-beom, chairman of the Isu Group. Upon merger, Isu Exachem will transfer most of its debt to Isu Specialty Chemical. As a result, Chairman Kim Sang-beom will significantly reduce the debt burden of his personal company Isu Exachem and strengthen his control over the affiliate Isu Specialty Chemical. However, the financial structure of Isu Specialty Chemical is expected to deteriorate.

According to the Financial Supervisory Service's electronic disclosure system on the 26th, Isu Specialty Chemical announced on the 24th that it will absorb and merge the business division of Isu Exachem, including precision chemicals, through a spin-off. The method involves acquiring the newly established company from the spin-off of Isu Exachem and issuing new shares of Isu Specialty Chemical to the existing shareholders of Isu Exachem.

Isu Specialty Chemical is a company engaged in precision chemicals and solid-state battery materials. Its largest shareholder is Isu Corporation. The Isu Exachem being spun off is a company at the top of the Isu Group's governance structure. Chairman Kim Sang-beom is the 100% largest shareholder. Through this company, Chairman Kim holds 73.44% of Isu Corporation's shares.

Isu Exachem is a distribution company that purchases and sells petrochemical and precision chemical products from Isu Chemical and Isu Specialty Chemical. As of 2022, it recorded sales of 369.9 billion KRW and operating profit of 23 billion KRW. It is a company with assets of 165.1 billion KRW, liabilities of 94.1 billion KRW, and equity of 71 billion KRW.

With this spin-off, Isu Exachem will separate all its business divisions and become a holding company holding only shares of Isu Corporation. A spin-off is a method of dividing the company's and existing shareholders' shares according to their proportions. Although Isu Exachem will be divided into a surviving company and a newly established company, 100% of the shares of both companies are held by Chairman Kim Sang-beom.

In this spin-off, most of the existing debt of Isu Exachem will be taken over by the newly established company. The newly established company's assets amount to 79.5 billion KRW, of which liabilities are 76.6 billion KRW and equity is 2.9 billion KRW.

Isu Specialty Chemical valued the newly established company from the spin-off at approximately 70.8 billion KRW. It calculated the total value by weighting the current net asset value held by the company at 1.2 billion KRW and the estimated future earnings value at 117.2 billion KRW.

Accordingly, Chairman Kim Sang-beom will newly receive 441,824 shares (7.3%) of Isu Specialty Chemical worth 70.8 billion KRW. Including related parties, the total shareholding ratio will increase from the existing 30.36% to 35.46% after the merger. This structure strengthens control over the company.

However, since Isu Specialty Chemical assumes the debt of Isu Exachem, its financial structure will deteriorate. As of the end of last year, Isu Specialty Chemical's debt ratio was about 90%, but it is expected to rise to 157% after the merger. Conversely, Isu Exachem's debt ratio, after shedding debt, will sharply decrease from 132% to 25%.

Moreover, due to the elimination of internal transactions, sales are not expected to increase as they will be reflected on the surface. As of the third quarter of last year, Isu Specialty Chemical's cumulative sales amounted to 84.7 billion KRW, of which 83%, or 70.8 billion KRW, were sales to Isu Exachem. After merging with the newly established company from Isu Exachem's spin-off, most of the sales will disappear.

Nevertheless, this aspect was not considered in the merger ratio calculation. The corporate value of Isu Specialty Chemical was calculated based on the average market price.

Regarding this, a representative of Isu Specialty Chemical stated, "The market price of a listed company reflects all situations, including internal transactions," and added, "Although there may be share dilution due to new share issuance, the merger is not against shareholder interests as earnings per share (EPS) are expected to increase after the merger." He further noted, "The rise in stock price after the merger announcement indicates positive market evaluation."

Meanwhile, this merger is a small-scale merger, and shareholder meeting approval will be replaced by board approval. Shareholders will be confirmed on February 8, and objections to the merger will be accepted until February 22. If shareholders holding more than 20% of the total shares oppose, the merger will be canceled. The merger date is April 1.