Enchem, a South Korean electrolyte manufacturer for secondary batteries, announced on the 15th a plan to list its US subsidiary Enchem America on NASDAQ through a reverse merger with Singapore-based The GrowHub Limited. The transaction aims to raise capital as Enchem faces mounting liquidity pressure from consecutive operating losses totaling 50.4 billion won in 2024 and 78.3 billion won the previous year. The merger proposal comes under scrutiny as South Korea's financial regulator introduced duplicate listing regulations this month, requiring parent companies to obtain shareholder approval and demonstrate that subsidiary listings will not dilute corporate value or harm minority shareholders.
The GrowHub Schedules Shareholder Meeting for Merger Approval
The GrowHub will hold an extraordinary shareholder meeting on the 5th of next month to vote on increasing the number of issued shares and other merger-related matters. Upon completion of amendments to the articles of incorporation, the company plans to submit a merger application to the US Securities and Exchange Commission (SEC) next month. The transaction is structured as a special purpose company (SPC) arrangement involving only equity exchanges with no cash consideration. When the deal closes, Enchem will hold 85% of The GrowHub's shares, while The GrowHub will own 100% of Enchem America.
Enchem America recorded total assets of 222.6 billion won, net assets of 130.9 billion won, and revenue of 164 billion won as of the end of last year. This revenue figure represents approximately half of Enchem's consolidated revenue of 312.7 billion won. An Enchem representative stated the company will strictly comply with the Financial Supervisory Service's duplicate listing guidelines and implement a phased shareholder return policy when distributable profits are generated, codifying this commitment in the corporate governance report.
Enchem Reports Operating Losses and Shrinking Cash Reserves
Enchem's consolidated operating losses reached 50.4 billion won in 2024, 78.3 billion won the previous year, and 24.2 billion won in the first quarter of this year. As large-scale losses continued, cash and cash equivalents shrank to 7.2 billion won. The company holds several tens of billions of won in financial assets, but a significant portion is pledged as collateral and unavailable for use. Short-term borrowings due within several months total 150 billion won.
Separately from short-term debt, Enchem issued convertible bonds (CB) totaling 360 billion won since 2023. As of the end of the first quarter this year, the total amount of unrepaid bonds reached 280 billion won. The conversion prices of these CBs range from a minimum of 62,937 won to a maximum of 112,700 won. Given that Enchem's closing price on the previous trading day was 19,150 won, most of the unrepaid CBs are expected to be subject to redemption requests.
Former CEO Oh Jung-gang, who was the largest shareholder, faced margin calls in March, causing his stake to plunge from 13.18% to 3.52%. In April, Wired Group, which Oh owns 100%, secured an additional 9.41% stake in Enchem through a collateralized loan.
An Enchem representative explained the company is proceeding with a bridge loan of 80 billion to 100 billion won in July-August for immediate liquidity and is also pursuing fundraising through domestic securities firms. The representative added that if the subsidiary listing is completed, large-scale fundraising of more than 200 billion won will be possible.
The GrowHub Faces SEC Hearing Over Delisting Risk
The merger between Enchem America and The GrowHub has not been finalized. The GrowHub failed to submit its audit report last year and faced delisting risk as its stock price fell below $1. On the 16th, The GrowHub was reportedly asked to provide additional materials at a hearing with the SEC. It is expected to take two to four weeks for the results of this matter to be determined.
Following the merger announcement, The GrowHub's stock price has experienced sharp volatility. The stock surged 23.17% on the 15th when the merger was disclosed and 86.62% on the 16th, before plunging 42.11% on the 17th and 33.66% on the 20th.
FAQ
What did Enchem announce on the 15th?
Enchem announced a plan to list its US subsidiary Enchem America on NASDAQ through a reverse merger with The GrowHub Limited, a Singapore-based company already listed on NASDAQ. The transaction is structured as an equity-only arrangement with no cash consideration, and upon completion, Enchem will hold 85% of The GrowHub's shares while The GrowHub will own 100% of Enchem America.
Why is Enchem pursuing this subsidiary listing?
Enchem faces severe liquidity pressure due to consecutive operating losses totaling 50.4 billion won in 2024 and 78.3 billion won the previous year. The company's cash reserves shrank to 7.2 billion won while short-term borrowings reach 150 billion won and unrepaid convertible bonds total 280 billion won. The subsidiary listing aims to raise more than 200 billion won if completed, with interim bridge loans of 80-100 billion won planned for July-August.
What regulatory challenges does Enchem face for this listing?
South Korea's financial regulator introduced duplicate listing regulations this month that require parent companies to obtain shareholder approval through a special resolution and demonstrate that subsidiary listings will not dilute corporate value. Enchem must prove that listing Enchem America, which generates half of the parent company's consolidated revenue, will not harm minority shareholders. Domestic precedents include Duksan Hi-Metal's subsidiary Duksan Nepcores and Dasan Networks' subsidiary DTS, both of which received over 90% shareholder approval by emphasizing that their subsidiaries operate in different business sectors from the parent companies.
