Imprisoned South Korean billionaire’s wealth soars 919 pc. Here’s why

The shares of South Korean battery material manufacturer Ecopro Co. have increased 919 per cent this year thanks to the business’s explosive growth, which is the highest gain of any company with a market capitalisation of at least $10 billion.

This is a clear indicator that the best-performing stock in the world can withstand almost anything, even the imprisonment of its founder for insider trading.

Lee Dong-chae, its former chairman and chief executive officer, has seen enormous wealth gains as a result of that surge, which is attributed to a large number of Korean retail investors. According to the Bloomberg Billionaires Index, he and his family’s fortune increased by nearly $4.5 billion this year to reach $4.9 billion.

These gains have mostly come while Lee has fought allegations of insider trading, which led to him being sentenced to two years in prison and paying a fine of 2.2 billion won ($1.7 million) for breaking capital markets law.

At a time when worries are growing that Ecopro’s share price boom is unsustainable and has outpaced fundamentals, his detention, which South Korea’s Supreme Court upheld last month, has brought attention to the company’s governance.

“I don’t think even Lee expected the company to grow so fast,” Park Ju-gun, head of corporate research firm Leaders Index in Seoul told Bloomberg. “Their internal infrastructure may not have developed at the speed of their growth.”

The absence of Lee is felt by the company, according to a spokeswoman who told Bloomberg in a written statement that the company is “desperately in need” of his “forward-looking insight and spirit to challenge.”

Retail investors from South Korea, who dominate the country’s share market, are the driving force behind Ecopro’s surge. This year, companies that produce materials or components used in the construction of cars are prospering, and equities related to electric vehicles are the most popular trade. The cathodes used in lithium-ion batteries for clients including Samsung SDI Co. and SK On Co. are provided by Ecopro BM Co., a listed subsidiary of Ecopro. Ecopro BM Co. is up 227 per cent and is the largest firm on the nation’s tech-heavy junior market Kosdaq, followed by its parent.

Ecopro’s quick rise is proof that investors’ rising desire for businesses can profit from the booming EV sector. However, there are questions about whether the increase has  been too quick. Market analysts warn that the speculative wagers made by the influx of new retail investors brought on by the Covid 19 pandemic are capable of generating both unbearable losses and spectacular rewards.

According to Park, the market for rechargeable batteries will surely grow in the future, but it is unusual to see only a few firms making significant profits, according to Park. He also said that Ecopro has overheated as a result of its popularity with retail investors.

When compared to the same period last year, Ecopro’s revenue increased by 64 per cent to 2 trillion won, but its operating profit only increased by less than 1 per cent to 170.3 billion won. Despite increasing sales of EV cathodes, rising metal prices and currency fluctuations hurt profitability, according to the company’s earnings report. Ecopro BM is the source of the majority of its income.

Environmental inspiration

Lee, who was raised in a low-income household in the southeast port city of Pohang and attended night classes to study business management, established Ecopro in 1998 after being moved by the 1997 Kyoto Protocol’s goal to cut greenhouse gas emissions.

Initially concentrating Ecopro on creating ecologically friendly items, the 63-year-old, who had previously worked as an accountant and had another business selling furs that didn’t take off, switched to inventing materials for EV batteries 20 years ago.

Last year in March, he stepped down as CEO following allegations that numerous workers, including Lee, engaged in insider trading. According to a statement made by the Supreme Court last month, Lee used accounts that were registered to him under a different name and those that belonged to his children to trade Ecopro BM stocks using secret knowledge about the company’s cathode supply agreements in 2020 and 2021. He made almost 1.1 billion won as a result, it claimed.

With around 25 per cent of the company’s shares held directly and indirectly, Lee is still the largest stakeholder. According to the spokesperson, he and his family own the minimum of shares required to retain their managerial authority.

Governance improvements  

The company established a monitoring system for insider trades, including those in non-listed companies, once the charges against Lee were made, the Ecopro representative said. By requiring high-profile executives and workers to register stock transactions, it also stepped-up compliance efforts.

The corporation joined the Fair-Trade Commission’s list of big business groups with assets worth more than 5 trillion won earlier this year. The holding company with 26 affiliates is now subject to stricter rules and scrutiny as a result of the inclusion.

Nevertheless, it is still unclear whether Ecopro can keep up with market expectations given the stock’s extraordinarily high value.

(With inputs from Bloomberg)