POSCO Future M Launches 1.1 Trillion Won Rights Offering... Securities and Rating Agencies Call It "Necessary Funding"

Securities firms and credit rating agencies have assessed that the capital raising by POSCO Future M, which decided on a rights offering exceeding 1 trillion won, was a necessary move. However, they also pointed out that the company is facing a challenging business environment due to factors such as a temporary demand stagnation (chasm) in the electric vehicle market, which could pose a burden.

According to the electronic disclosure system (DART) on May 14, POSCO Future M announced the previous day that it would carry out a rights offering for existing shareholders amounting to 1.1 trillion won. The company plans to issue a total of 11,483,000 new shares, with the planned issue price set at 95,800 won per share.

The funds raised will be allocated to facilities (181 billion won), operations (288.3714 billion won), and the acquisition of securities from other companies (630.7 billion won). Specifically, of the funds allocated for the acquisition of securities from other companies, 353.4 billion won will be invested in a battery material manufacturing joint venture with General Motors (GM) in the United States. Additionally, 277.3 billion won will be invested in a spherical graphite production company to complete the natural graphite supply chain.

For facility funds, 117.8 billion won will be used for maintenance investments in existing facilities and improvements to battery material production processes, while 63.2 billion won will be invested in the Phase 5 high-nickel NCA (nickel-cobalt-aluminum) cathode material manufacturing facility in Gwangyang, which has an annual capacity of 53,000 tons. Operational funds totaling 288.4 billion won will be used for payments such as raw material purchases for the Gwangyang precursor plant.

Securities firms evaluated POSCO Future M's rights offering positively in terms of resolving funding uncertainties. Lee Yongwook, a researcher at Hanwha Investment & Securities, stated, "POSCO Future M inevitably needed additional funding due to ongoing capital expenditures (CAPEX) and operational expenses," adding, "This necessary capital raising is positive in terms of resolving uncertainties."

Ahn Hoesoo, a researcher at DB Financial Investment, also explained, "As of the end of the first quarter this year, POSCO Future M's debt ratio stood at 139%, and its cash and cash equivalents amounted to 460 billion won," and "The market recognized that a rights offering was inevitable to cover this year's CAPEX of 1.3 to 1.7 trillion won."

Credit rating agencies also indicated that this rights offering could help alleviate downward pressure on the company's credit rating. Korea Ratings stated, "The financial burden from large-scale facility investments has been ongoing for POSCO Future M," and "Along with deteriorating business performance due to the slowdown in the battery industry since 2023, the company is now meeting the criteria for increased likelihood of a downgrade in its Key Monitoring Indicators (KMI)."

The agency further explained, "The capital increase through the rights offering will improve the company's financial structure and enhance its ability to respond to future investment needs, which is expected to buffer the downward pressure on POSCO Future M's credit rating."

However, the ongoing unfavorable market conditions remain a concern. This is because the electric vehicle market is in a negative situation due to factors such as the chasm. Korea Ratings commented, "In a persistently unfavorable business environment, the burden of CAPEX remains," and "Even after the rights offering, the company is likely to continue meeting the criteria for increased likelihood of a downgrade in its KMI."

Researcher Ahn Hoesoo also noted, "A large portion of POSCO Future M's shipments are to North America," and "Short-term performance uncertainty is increasing due to factors such as the possibility of amendments to the Inflation Reduction Act (IRA)."