PI Advanced Materials factory in Jincheon County, North Chungcheong Province / Courtesy of PI Advanced Materials

By Park Jae-hyuk

Baring Private Equity Asia (BPEA) is expected to face a lawsuit for the abrupt notification of its intention to cancel a contract to acquire PI Advanced Materials from Glenwood Private Equity.

According to PI Advanced Materials' regulatory filing, Sunday, its largest shareholder will not accept the buyer's request to cancel the acquisition deal.

"The seller was informed of the buyer's intention to cancel the share purchase agreement (SPA) on Dec. 8," the polyimide film producer said. "However, the seller regards the buyer's notification as invalid, so the seller plans to urge the buyer to fulfill the agreement."

In June, BPEA signed the SPA to acquire a 54 percent stake in PI Advanced Materials for 1.3 trillion won ($1 billion) from Glenwood by Dec. 30. Back then, the polyimide film producer's stock price was 80,302 won per share.

Its stock price, however, has dropped sharply since the contract, closing at 31,800 won on Thursday.

The rapid stock price fall appears to have caused concerns among investors in BPEA's fund, prompting the Hong Kong-based private equity firm (PEF) to cancel the contract, despite losing an estimated 50 billion won.

BPEA, however, is unlikely to avoid a legal battle with Glenwood, given that the Korean PEF needs to exit its portfolio company amid difficulties in finding the new buyer of PI Advanced Materials.

Glenwood took over a controlling 54 percent stake in PI Advanced Materials for about 608 billion won, or about 38,300 won per share, in March 2020, when the manufacturer was SKC Kolon PI.

Although PI Advanced Materials' stock price rose sharply after the company was transferred to the benchmark KOSPI from the tech-heavy KOSDAQ market in 2021, Glenwood has faced skepticism over its planned divestment from the polyimide film producer, whose profitability has been deteriorating.

During the third quarter of this year, PI Advanced Materials posted 70.3 billion won in sales and 14.1 billion won in operating profit, down 12.5 percent and 26.6 percent respectively from a year earlier. As a result, securities analysts cut their stock price targets again this quarter.

"Its operating ratio is likely to decline further, due to the slow demand from its clients," eBest Investment & Securities analyst Kim Dae-jong said in report.

When PI Advanced Materials was put up for sale earlier this year, Lotte Chemical was among the bidders, along with other global materials companies and PEFs.

However, Lotte is currently busy raising money to acquire Iljin Materials and to offer financial support for its cash-strapped construction unit. PEFs have also remained cautious about making aggressive investments lately, due to the rising interest rates and concerns over an economic recession.