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South Korea’s SK Global Chemical is buying a 10-per-cent stake in Quebec-based Loop Industries Inc. for $56.5-million, and the two plan to form a joint venture to deploy Loop’s proprietary plastic recycling technology in Asia.

Under the deal, SKGC will buy 4.7 million Loop shares for US$12 each. SKGC is also being granted options to boost its stake over the next three years, contingent on the progress of construction of a first Asian manufacturing plant.

The two are announcing the deal eight months after Loop’s shares tumbled following a negative report by prominent U.S. short-seller Hindenburg Research. Hindenburg said in mid-October it had interviewed former employees, competitors, corporate partners and chemists, and concluded that “Loop is smoke and mirrors with no viable technology.”

Loop responded by saying the report was “either unfounded, incorrect or based on the first iteration” of its technology, which is a chemical process, rather than a mechanical one, for recycling plastic into what the company says is high-quality usable material.

Loop’s shares on the Nasdaq lost half their value in the 17 days after the release of Hindenburg’s report, falling as low as US$5.85. They have since recovered, closing on Tuesday at US$13.12.

The deal with SKGC, part of one of South Korea’s largest conglomerates, shows the promise of the technology, said Loop founder and chief executive officer Daniel Solomita.

“They had approached us last summer, so they were already under way doing the technical due diligence on Loop as early as September,” Mr. Solomita said in an interview. “By the time that Hindenberg report came out, they already had a very good understanding of our technology. They realized that everything in the Hindenburg report was basically false information.”

The deal took longer than expected to close, though part of that was because of COVID-19, Mr. Solomita said. The Canadian government granted a waiver to allow the SKGC officials to continue their study of Loop and its technology, he said.

Under a memorandum of understanding, the companies intend to form a joint venture to build sustainable polyethylene terephthalate (PET) and polyester fibre manufacturing facilities throughout Asia. SKGC would own 51 per cent of the venture and Loop the remainder. Loop would also receive an annual royalty based on a percentage of revenue.

PET, used in things such as drink bottles, is a major source of pollution, and Loop says its process recycles it into virgin-quality plastic. “Our technology is really at the forefront of what the circular economy is,” Mr. Solomita said. “You take a finished product and break it down into what it used to be, and build it back up again into a finished product or something of a higher quality.”

The company intends to use proceeds from the investment to fund a new manufacturing facility in Bécancour, Que. After the deal, SKGC will be Loop’s second-largest shareholder after Mr. Solomita, who has nearly 45 per cent of the shares outstanding, according to S&P Capital IQ.

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