POSCO FUTURE M is pushing for a paid-in capital increase in the trillion-won range for the first time in four years. During the last capital increase, POSCO FUTURE M's stock price rose due to increased expectations for its secondary battery material business, which was linked to new facility investments. However, it is anticipated that results, such as increased operating rates post-investment, will be necessary amidst considerable reluctance regarding the recent shareholder allocation capital increase.
On 14th, POSCO FUTURE M's stock price was traded at 114,600 won on the KOSPI market at 11:05 a.m. The stock price fell by 4.58% (5,500 won) from the previous day. This is due to the increased likelihood of stock price dilution following the announcement of the capital increase.
POSCO FUTURE M announced a plan for a shareholder allocation capital increase amounting to 1.1 trillion won after the market close the previous day. It will issue 11,483,000 new shares at 95,800 won per share, allocated to existing shareholders (current shareholders), and conduct a public offering for any unsubscribed shares.
POSCO FUTURE M plans to use most of the funds raised from the capital increase for facility investments. It will first invest 353.4 billion won in a cathode material production plant being established in Canada in collaboration with General Motors (GM). Additionally, 277.3 billion won will be used to set up equipment for natural graphite anode material production, while 117.8 billion won and 63.2 billion won will be allocated for maintenance of existing equipment and expansion of domestic cathode material plants, respectively.
Securities firms positively evaluated the investment details through this capital increase from POSCO FUTURE M. This is because the automobile industries in the United States and Europe emphasize mineral eligibility requirements for secondary battery material companies due to subsidies and the Critical Raw Materials Act (CRMA).
Kim Hyun-soo, a researcher at Hanwha Investment & Securities, noted, "The significance of this capital increase lies in securing funds for the Korean plant operation of the most important precursor in the mineral eligibility assessment and for the expansion of anode materials that will be subjected to tariffs against China starting in 2027." He said, "I believe that POSCO FUTURE M can lead in competition among cathode material corporations from Korea, China, and Japan."
POSCO FUTURE M also conducted a shareholder allocation capital increase amounting to 1.27 trillion won in 2021. At that time, it became a driver for the stock price increase. The stock price, which was around 90,000 won (adjusted price) prior to the capital increase in December 2020, soared to 184,500 won during intraday trading in February of the following year.
Looking at the structure of the capital increase, it is not significantly different from the last capital increase. POSCO FUTURE M set the discount rate for the new share issuance at 20%, the same as in the 2021 capital increase. Although the capital increase ratio exceeded 20% last time, it is 14.82% this time. Compared to past examples of shareholder allocation capital increases amounting to 1 trillion won over the past five years, the discount rate is higher than the average (19.2%), while the capital increase ratio is lower than the average (35.4%).
It is uncertain whether POSCO FUTURE M will show a movement similar to the significant rise in stock price seen after past capital increases. This is because expectations for the secondary battery business are not as high as before following the electric vehicle chasm.
Additionally, POSCO FUTURE M's debt burden has increased compared to the past. This is the background for once again reaching out to shareholders after four years. POSCO FUTURE M's debt ratio rose from 60.9% at the end of 2021 to 139% at the end of March this year, more than doubling. During the same period, long-term borrowing funds increased from 180.1 billion won to 1.6326 trillion won, with the reliance on borrowing funds rising from 28.1% to 46.1%.
Lee Yong-wook, a researcher at Hanwha Investment & Securities, said, "Unlike in the past, when POSCO FUTURE M showed robust stock price trends after capital increases, the current market situation has changed significantly." He explained, "At that time, performance forecasts were revised upward due to expanded production capacity investments, but now, due to the reduced investments from finished car and battery companies and low operating rates, performance forecasts are being revised downward." He added, "Sustained increases in stock price will likely occur when market share and operating rates are proven to rise."
For POSCO FUTURE M to successfully complete the capital increase, it must also pass the scrutiny of the Financial Supervisory Service. Hanwha Aerospace, which previously announced its capital increase, has repeatedly faced rejection and has had to resubmit its securities registration statement.
After passing the review by the Financial Supervisory Service, the subscription rate will be crucial. POSCO FUTURE M recorded a subscription rate of 103.3% for existing shareholders during its 2021 capital increase. The largest shareholder, POSCO Holdings, will consume the entire allocated quantity, just as it did last time. It remains to be seen whether the employee stock ownership association will subscribe to all of the 20% allocated new shares.