[Reporter’s Notebook] Wave of Rights Offerings Among Secondary Battery Companies

POSCO Future M Executes 1.1 Trillion Won Rights Offering
Amid Weak Demand and Falling Utilization Rates
Task Ahead: Restoring Trust as Stock Price Plummets

Following a 1.1 trillion won rights offering by secondary battery company POSCO Future M, there are growing predictions within the industry that a wave of additional capital increases will follow.

This outlook appears to be based on precedent. Prior to POSCO Future M, secondary battery companies SK On and Samsung SDI each decided on rights offerings of 1.5 trillion won and 2 trillion won, respectively. While rights offerings are a way to raise capital, they inevitably dilute existing shareholders’ stakes, resulting in unavoidable losses for shareholders.

The decisions made by these companies to proceed with rights offerings are understandable. The secondary battery market has been hit hard by sluggish demand for electric vehicles, its main source of demand. While capital expenditures have increased, actual facility utilization and sales have lagged behind. This means profitability is collapsing.

As recently as 2020, POSCO Future M’s facility utilization rate was as high as 80-90%. Last year, it fell to the 30% range. As of the first quarter, the company’s consolidated debt ratio reached 140%, and total financial liabilities?including short-term and long-term borrowings and bonds?exceed 4 trillion won. In contrast, cash and cash equivalents amount to only 444.7 billion won. Ultimately, the rights offering was an unavoidable choice. Meanwhile, the company must pioneer new markets and achieve technological advances faster than anyone else. Standing still would mean being eliminated from the market.

This kind of financial pressure is not unique to POSCO Future M in the secondary battery market, where poor performance and liquidity crises are occurring simultaneously across the entire value chain. Samsung SDI posted an operating loss of more than 400 billion won in the first quarter, while L&F has recorded losses for six consecutive quarters. SKC, Solus Advanced Materials, and Lotte Energy Materials have also posted losses for several consecutive quarters. The market has not recovered while these companies have been shouldering high fixed costs.

With expansion in electric vehicle demand looking distant and global competition intensifying, taking on more debt is not an easy option. Some materials companies have debt ratios of 200% or even 300%. With bank lending standards becoming stricter, the alternatives available to these companies are limited. Although rights offerings inevitably require sacrifices from shareholders, from the companies’ perspective, they are a less painful way to raise funds because they do not involve paying interest.

After POSCO Future M’s rights offering announcement, its stock price plummeted. As of 10 a.m. on the 14th, the company’s share price stood at 112,300 won?less than 20% of its peak. The company also faces the hurdle of a review by the Financial Supervisory Service. To clear this and persuade shareholders, the company will have to emphasize that the funds raised will be used effectively. Ultimately, the results will have to speak for themselves. The management faces significant pressure to find ways to enhance business competitiveness and improve performance, rather than simply appeasing shareholders.