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Why Shares of Loop Industries Are Surging Today

By Bram Berkowitz - Jun 23, 2021 at 12:05PM

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The company recently struck a major partnership with an Asian conglomerate that will help the company expand.

What happened

Shares of the sustainable-plastics company Loop Industries (LOOP 3.29%) had surged more than 31% as of 11:20 a.m. EDT today after the company announced a strategic partnership with the Asian conglomerate SK3 Group (OTCMKTS:SKTO). 

So what

A subsidiary of the SK3 Group called SK Global Chemical agreed to take a 10% stake in Loop Industries by purchasing roughly 4.71 million new treasury common shares at $12 per share for a total price of $56.5 million. SK Global will also have the option to purchase more shares of the company in coming months.

Loop plans to put the money toward building its planned Infinite Loop factory at a recently acquired site in Québec.

Additionally, SK Global and Loop plan a joint venture to build sustainable polyethylene terephthalate (PET) plastic and polyester fiber factories in Asia. SK Global will own 51% of the joint venture, while Loop will own 49% and receive annual royalties based on a percentage of revenue from each factory built.

Rising line on a chart on a piece of paper.

Image source: Getty Images.

"SK Global Chemical is an ideal strategic partner to accelerate the growth of our company and the global commercialization of our technology," Loop CEO Daniel Solomita said in a statement. "Its scale and sophistication, its global chemicals manufacturing footprint and a shared vision to create value through sustainability and innovation make them a valued partner in our journey to bring our technology to market."

Now what

Investors typically react negatively when companies raise new capital by issuing shares because it often dilutes their existing stake in the companies. But in this case, investors clearly see the merit of the money and the investments being made, which is a good sign.

But Loop was the subject of a short report by Hindenburg Research last October, and 14.5% of the company's float is currently sold short. This report could certainly be wrong with its assessment, but I always think it's at least worth it to check out the concerns raised in the report before investing.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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