RMB 2.4 billion in overseas assets face losses and idle status, Rongbai Technology initiates subsidiary equity restructuring

This report (chinatimes.net.cn) reporter Hu Yawen reports from Beijing

An increasing number of new energy companies must face the implications of the U.S. “Inflation Reduction Act.” Should they abandon the North American market or rebuild their overseas structure? Rongbai Technology (688005.SH) has chosen the latter.

On March 17, Rongbai Technology announced plans to reduce the Chinese ownership ratio of its wholly-owned subsidiary in South Korea to below 25% through a series of operations, including equity transfers, to gain Non-PFE (non-prohibited foreign entity) status, thereby revitalizing the capacity of its South Korean ternary cathodes, which has accumulated an investment of 2.472 billion yuan. As of the time of publication, a reporter from the “Hua Xia Times” had sent inquiries to Rongbai Technology regarding related issues but had not received a response.

This transaction involves the establishment of a joint venture by Rongbai Technology and its actual controller, Bai Houshan, the repayment of the South Korean subsidiary’s 1.088 billion yuan in existing debt, and the protection of Rongbai Technology’s future interests in the North American market. Well-known tax and accounting expert and senior certified public accountant Liu Zhigeng told a reporter from the “Hua Xia Times,” “This transaction is formally a premium sale, but overall it resembles a strategic divestiture of loss-making assets to avoid policy risks. The core goal is to adjust equity to make Singapore AKB the Non-PFE entity, thereby restoring supply qualifications in the North American market.”

Survival and Loss Prevention

In 2013, Laishi Energy Co., Ltd. (hereinafter referred to as “Korean JS”) was established as a wholly-owned subsidiary of Rongbai Technology, representing an investment of 2.472 billion yuan to create an overseas production base for cathode materials. Korean JS has successively built high-nickel ternary cathode production capacities of 27,000 tons and 40,000 tons per year, specifically targeting the North American market. Additionally, there are supporting capacities for ternary precursors and investment layouts aimed at the European market.

However, the “Inflation Reduction Act” stipulates that enterprises in which Chinese entities hold more than 25% are classified as “prohibited foreign entities” (PFE). Once identified as such, North American customers will be unable to apply for tax incentives for purchasing PFE products. This directly weakens the competitiveness of Chinese enterprises in the North American market. Rongbai Technology stated, “The ternary capacity established in South Korea cannot effectively supply the Chinese and European markets due to economic reasons and the EU’s localization production requirements, and can only target the North American market. However, the company will lose all North American customers due to its PFE status, ultimately leading to idle capacity, continuous losses for Korean JS, asset impairment, and other damages to the company’s interests.”

Singapore AKB will replace Korean JS as the new entity to take on actual assets. Bai Houshan and Rongbai Technology established Singapore AKB and Korean AKB (a wholly-owned subsidiary of Singapore AKB) by the end of 2025. The announcement revealed that Rongbai Technology plans to split Korean JS into two entities, Korean JS Old and Korean JS New. Among them, Korean JS Old will hold a ternary cathode capacity of 7,000 tons/year and plans to transfer 31% and 69% equity of Korean JS Old to Singapore AKB and Korean AKB, respectively.

The pricing for this transaction has not yet been finalized, but the announcement clearly states that the transaction price will have a certain premium based on the net asset assessment value of Korean JS Old and will not be less than the initial investment cost of fixed assets, with the assessment value expected to exceed $9 million (approximately 620 million yuan). As of the end of 2025, the cumulative investment amount for related assets is $6.8 million, with depreciation of $800,000 already accounted for since its use began in 2024.

It is noteworthy that before asset delivery, Korean JS Old needs to repay a total of 1.088 billion yuan in payables to Rongbai Technology. Liu Zhigeng detailed the composition of this debt for reporters: the 1.088 billion yuan in payables consists mainly of two parts, with 91 million yuan being accounts payable arising from daily purchases (such as materials and equipment), and 997 million yuan being funds provided by the parent company for loans, management support, and R&D advances, among other non-trade transactions.

Regarding the source of funds for repayment, Liu Zhigeng stated, “The funds for debt repayment do not rely on the operating cash flow of Korean JS Old (which has idle capacity due to PFE restrictions) but come directly from the equity transfer payments made by Singapore AKB and Korean AKB. The transaction funds will fully flow back to the listed company before asset delivery, ensuring a closed loop for debt repayment.”

After the relevant transaction involving Korean JS Old is completed, Korean AKB will gradually purchase the remaining ternary cathode capacity owned by Korean JS New based on financing progress. Ultimately, Singapore AKB will take over the current ternary capacity of 67,000 tons/year held by Korean JS as a Non-PFE and will conduct North American business. Rongbai Technology will hold a 24.9% equity stake in Singapore AKB, enabling it to share its operating profit under the equity method in the future.

How to Ensure Voice?

Behind Singapore AKB is the actual controller of Rongbai Technology, Bai Houshan. In the past year, Rongbai Technology and Bai Houshan established a joint venture company, Singapore AKB, in collaboration with Amkobay Holding Pte. Ltd. (hereinafter referred to as “Singapore Company”). Rongbai Technology invested 124,500 Singapore dollars (approximately 680,000 yuan) in Singapore AKB through Korean JS, corresponding to an equity ratio of 24.9%; the Singapore Company invested 375,500 Singapore dollars (approximately 2.01 million yuan), corresponding to an equity ratio of 75.1%.

This means that after this transaction, the core North American business will enter a structure controlled by Bai Houshan with 75.1% of Singapore AKB. Subsequently, Singapore AKB will also introduce third-party overseas investors and battery funds, and the proposed battery fund will become the main shareholder of Singapore AKB. For Rongbai Technology, after the transaction is completed, it will only hold a minority stake of 24.9% in Singapore AKB. Under the leadership of the actual controller and with the potential for new investors to be introduced later, how can Rongbai Technology ensure its voice?

Liu Zhigeng stated that as a minority shareholder of Singapore AKB, Rongbai Technology’s voice does not depend on its shareholding ratio but is realized through contractual rights in the shareholder agreement (SHA). The core protection mechanism of this agreement includes board seats, veto rights on major matters, rights to information and audits, rights of first refusal, and anti-dilution protection, “These terms are standard SPV governance practices internationally, especially in the new energy sector, where Chinese enterprises commonly adopt such structures when establishing Non-PFE entities overseas. Although the announcement did not disclose the specific agreement text, the statement that ‘fully protects the interests of minority shareholders’ implicitly indicates the existence of such contractual arrangements.”

From a revenue perspective, after the adjustment of the Korean asset equity, Rongbai Technology’s future sources of income will include one-time equity transfer payments and ongoing operational profits derived from the equity method. However, sustainable revenue depends on the profitability of Singapore AKB, and whether Singapore AKB can successfully penetrate the North American market and respond to ongoing changes in U.S. policy remains uncertain.

In the past two years, Korean JS has continued to incur losses. In 2024 and 2025, Korean JS’s operating revenues are projected to be 684 million yuan and 1.277 billion yuan, respectively; the net profits excluding non-recurring items are projected to be -206 million yuan and -163 million yuan, respectively. Rongbai Technology stated, “Last year, Korean JS’s operating revenue accounted for 10.41% of the company’s total revenue, with a net profit of -164 million yuan. This adjustment in the Korean business will not have a significant adverse impact on the company. After the adjustment, Singapore AKB and its subsidiaries will be strictly limited to conducting cathode material business in the North American market, while Rongbai Technology will be strictly limited to other non-North American regional markets, ensuring clear business boundaries and independent customer structures for both parties.”

From a strategic perspective, this equity adjustment is a proactive measure by Rongbai Technology to address uncertainties; however, this transaction still faces multiple risks. The announcement warns that if policies related to the “Inflation Reduction Act” change, or if other relevant policies in the North American market are adjusted, the effects of the equity adjustment may fall short of expectations.

Editor: Li Weilai Chief Editor: Zhang Yuning