EcoPro BM decided on a 1.2 trillion won rights offering, sending its shares down more than 19% in the after-market after the close. The large new share issuance is seen as weighing on sentiment due to concerns about dilution of shareholder value.
According to the Financial Supervisory Service's electronic disclosure system on the 30th, EcoPro BM announced it will carry out a rights offering with a public offering of forfeited shares to the general public, totaling 1.199999988 trillion won.
The new shares will be 9,909,990 common shares, about 10.1% of the existing 97,830,434 outstanding shares. The expected offer price is 121,200 won per share, applying a 20% discount to the reference price. The final offer price will be set on Oct. 12.
Of the funds raised, 915 billion won will be used to acquire other companies' securities. EcoPro BM will use 765 billion won of that to acquire equity in the BNSI nickel smelter in Indonesia, and will allocate 150 billion won for operating funds for mass production at its Hungary unit and remaining investment costs. In addition, it plans to spend 150 billion won on investments in domestic cathode production facilities and 135 billion won for operating funds such as purchases of materials and supplies.
EcoPro said the same day it will increase its equity in the BNSI project in the Sulawesi region of Indonesia. EcoPro and EcoPro BM will expand their investment beyond the original plan to secure a total 39% equity stake and will raise annual production capacity to 90,000 tons from 66,000 tons. Once the investment is completed, EcoPro will secure nickel offtake rights totaling 65,000 tons.
Investors, however, reacted more sensitively to the large rights offering.
As of 5:34 p.m., EcoPro BM was trading at 125,100 won in the after-market, down 29,400 won (19.03%) from the previous session. The drop widened after it closed down 7.77% in the regular session.
Parent company EcoPro also plunged more than 18% in the after-market. EcoPro plans to subscribe for 4,366,131 shares, more than its originally allotted amount, contributing about 529.2 billion won. After the rights offering, EcoPro's equity stake in EcoPro BM is expected to edge up from 40.83% to 41.13%.
A rights offering is a method by which corporations raise funds by issuing new shares, and because the number of shares increases, the value of existing shareholders' equity and earnings per share (EPS) can be diluted, so it is generally viewed as a short-term negative.
The record date for EcoPro BM's new share allocation is Sept. 4, and subscriptions for existing shareholders will be held Oct. 15–16. The payment date is Oct. 23, and the scheduled listing date for the new shares is Nov. 5. The lead managers are Korea Investment & Securities Co., NH Investment & Securities, Mirae Asset Securities, and Daishin Securities.