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South Korea's United Asset Management Company (UAMCO) has scrapped its plans to sell Nexcon Technology, a retreat that was widely expected after a series of challenges in recent months.

The country’s largest bad debt manager has canceled its plans to sell Nexcon Technology, which produces parts used in secondary batteries, sources said on Tuesday. The move came three months after the first round of bidding for the company took place on February 14.

For the last five years UAMCO has deployed more than 1.6 trillion won ($13 billion) in distressed companies. But it has faced difficulties raising capital for its new blind-pool fund due to the lack of track record. This was one reason that UAMCO started preparing for an auction process to sell Nexcon Technology last summer as well as other portfolio companies with a strong financial position.

Nexcon Technology initially attracted plenty of potential buyers due to a strong improvement in its financial performance and an optimistic outlook for the secondary battery industry. It manufactures parts for secondary batteries such as battery protection circuits and battery management systems (BMS), counting Samsung SDI, LG Chem and Panasonic among its main customers.

After being acquired by UAMCO in 2016, Nexcon Technology’s financial performance has greatly improved. Its operating income turned positive to 11.2 billion in 2018 from operating loss of 11.6 billion won in the prior year. It recorded revenue of 295.2 billion won and operating income of 12.2 billion won for 2019.

But Nexcon Technology has been hamstrung by energy storage system (ESS) fires, which negatively affected ESS business of its customers and led to a significant decline in Nexcon Technology’s revenue. The company reportedly turned negative earnings in the fourth quarter last year. Pressure on revenue is expected to last for a longer period as the Korean government’s investigation team concluded earlier this year that faulty batteries were the main cause of fires.

Nexcon Technology’s plants in China and Vietnam were also shut down due to the COVID-19 pandemic. This, combined with reduction in its domestic production, has resulted in a continued decline in revenue. Its production has now increased to a level about 5 percent lower than during May of 2019, but the company has not recovered enough to be ready for due diligence by potential buyers.

UAMCO and lead sale managers Korea Development Bank (KDB) and EY Han Young recently tapped five to six companies that submitted bids during the first round of bidding but failed to receive sufficient interest to press ahead with an auction process.

“The call-off of the sale plans was widely expected because there was little information shared in the virtual data room for the last two months,” an industry insider said. “[Nexcon Technology] will be able to attract potential buyers again despite its weak financial performance in the first half of this year given strong potential of growth.”

(Reporting by Se-hun Jo)