[At the Crossroads] Ecoglow ③ CEO Song Hogil Incurs Losses by Failing to Recover 'Non-Performing Assets'

No Exercise of Put Option for Loss-Making Wellguard
Management Actions Contrary to Company Interests Under Scrutiny

It has been found that Ecoglow, a KOSDAQ-listed company, has not disposed of the non-performing assets it acquired from CEO Kwon Youngwon. Although the company should exercise its put option (right to sell) to recover approximately 8 billion won, it has left the matter unresolved. As a result, there are criticisms that CEO Song Hogil and other executives are acting against the interests of the company.

According to the Financial Supervisory Service's electronic disclosure system on September 22, Ecoglow acquired 100% of Wellguard (formerly The Pyeonhan Yangju) shares from its largest shareholder, The Pyeonhan, for 5.93 billion won on August 2, 2022. Wellguard is a hygiene mask manufacturing company established through a physical division from The Pyeonhan.

At the time of the acquisition, Ecoglow signed a put option contract with The Pyeonhan, allowing it to resell all Wellguard shares within 12 months starting three years after the acquisition. The contract grants the right to sell the shares at the higher of the acquisition price plus 3.6% annual interest or the corporate value at the time of exercising the put option.

In 2023, Ecoglow additionally injected 1.3 billion won into Wellguard through a paid-in capital increase, and attached a put option to this investment as well. At this time, the put option counterparty was changed from The Pyeonhan to CEO Kwon Youngwon personally, which is believed to be due to the deteriorating financial condition of The Pyeonhan. As of last year, The Pyeonhan's current ratio was around 15%. In other words, for every 100 won of short-term liabilities, the company had only 15 won in liquid assets.

The total amount, including the share acquisition and the paid-in capital increase, is 7.23 billion won. However, as of the end of the first half of this year, Wellguard's book value was only 1 billion won. This is because Wellguard has recorded tens of billions of won in losses every year since Ecoglow acquired it. The situation is interpreted as The Pyeonhan, which made profits from the mask business during the COVID-19 pandemic, offloading its mask business unit onto Ecoglow by leveraging its position as the largest shareholder as the pandemic ended.

From Ecoglow's perspective, the best course of action is to exercise the put option on the Wellguard shares as soon as possible to recover cash. Applying the annual interest rate stipulated in the contract, Ecoglow could recover about 8 billion won in cash by disposing of the Wellguard shares. Under the contract, Ecoglow has been able to exercise the put option since August 3 of last month. However, it appears that Ecoglow's management has not exercised the put option to date.

Currently, Ecoglow's management consists of five internal directors and one outside director, including co-CEOs Kwon Youngwon and Song Hogil. Of these, only CEO Kwon and Vice President Lee Inhun are from the original The Pyeonhan side, while CEO Song, Executive Director Park Jonghong, Director Cho Seungyong, and Director Kim Chanhee were newly appointed at the regular shareholders' meeting earlier this year.

In March, Song and his associates joined the management when Christianity invested 2 billion won in Ecoglow's paid-in capital increase. In addition, the 8 billion won paid-in capital increase being pursued since February is also targeted at a consortium associated with CEO Song. This indicates that they are a different power bloc from CEO Kwon.

Despite the fact that Song's side controls two-thirds of the board, Ecoglow has not exercised the Wellguard put option against CEO Kwon. This is seen as evidence that the management is acting against the interests of Ecoglow.

Ecoglow was contacted multiple times for comment, but did not respond.