Hyundai-LG’s Indonesia battery financing chosen as Asia deal of 2022

The $711 million financing organized by Hyundai Motor Co. and LG Energy Solution Ltd. last year for their battery joint venture in Indonesia has been chosen as the deal of the year by a renowned UK financial industry research firm.

The successful borrowing by South Korean companies amid high inflation and rising interest rates is one of the finance industry’s “best-practice examples,” according to TXF, part of Exile Group, which provides data on commodities, trade and financing.

“A toxic mix of high inflation and rising interest rates has had a knock-on effect on deal flow, as exporters and contractors struggle to arrange financing that adequately covers project costs,” TXF said after announcing the winners of its 10 export finance deals of the year for 2022.

Every January, TXF receives nominations from candidates for deals closed the previous year. This year, the Hyundai-LG Energy financing has been picked as Asia Deal of the Year 2022.

Hyundai Motor’s auto parts making affiliate Hyundai Mobis Co., which played a key role in arranging the project financing, said on Thursday that the successful financing was thanks to the active support of Korea Trade Insurance Corp., also known as K-Sure.

The state-run investment insurance firm worked as the export credit agency (ECA) for the deal by providing financing guarantees.

The $711 million financing marked the first time for a Korean ECA to be involved in an electric vehicle battery project.

“The transaction is an exceptionally important development in Asia’s overall EV transition,” TXF said.

INDONESIA, HYUNDAI’S SOUTHEAST ASIAN HUB

Hyundai Motor and LG Energy jointly secured the borrowing from five financial institutions at “favorable” interest rates, Hyundai Mobis said.

The repayment of the 10-year loan is guaranteed by Hyundai Motor, sister carmaker Kia Corp., Hyundai Mobis and LG Energy as well as K-Sure.

In August 2021, Hyundai Motor Group and LG Energy agreed to set up a $1.1 billion joint venture to produce NCMA (nickel, cobalt, manganese and aluminum) lithium-ion battery cells in Indonesia.

Construction of the plant located in Karawang New Industry City, near Jakarta, is expected to be completed by the end of this year.

The factory will begin commercial production in the first half of 2024 with an annual capacity of 10 GWh of battery cells, enough for over 150,000 EVs.

Indonesia has ample mineral resources such as nickel and cobalt, key raw materials for EV battery production. The Southeast Asian country is the world’s top nickel producer and boasts its largest reserves. 

The new battery cell plant is close to Hyundai Motor’s Indonesian car factory.

In March 2022, Hyundai Motor began mass production of its iconic all-electric IONIQ 5 crossover at the plant in the Deltamas industrial complex in Bekasi Regency, about 40 km east of Jakarta.

In recent years, Hyundai has been ramping up its Indonesian business to crack the Indonesian market dominated by Japanese carmakers such as Japan’s Toyota Motor and Honda Motor.

The top Korean automaker said it will use the Indonesia car manufacturing plant as its base to foray into the Southeast Asian market.

The battery JV with LG will allow Hyundai to secure a stable supply of battery cells, the companies said.

Write to Il-Gue Kim at Black0419@hankyung.com

In-Soo Nam edited this article.