LG Chem to issue up to $1bn ESG bonds; Moody’s raises outlook to positive

South Korea’s largest chemical producer LG Chem Ltd. plans to issue up to $1 billion in dollar-denominated green bonds to raise funds for its environmentally friendly projects.

According to the investment banking industry on Friday, the company has hired Citigroup Global Markets Korea Securities Ltd., HSBC and Bank of Korea Merrill Lynch as managers and entered sales talk with global institutional investors.

The company plans to issue environmental, social and governance (ESG) bonds worth between $500 million and $1 billion with a maturity of more than 5 years but less than 10 years, industry officials said.

An ESG bond is a type of sustainability debt offering aimed at financing corporate activities in environmentally friendly and sustainable projects.

LG Chem will conduct a bookbuilding process as early as next week to gauge demand for the dollar bonds, they said.

The chemical maker last issued foreign currency bonds in 2019 when it sold $1 billion in dollar bonds and 500 million euro-denominated bonds.

LG Chem is actively raising funds to invest in electric vehicle batteries and other eco-friendly projects. In February this year, it raised 1.2 trillion won ($1.1 billion) in corporate bonds in the domestic market.

LG Chem operates the battery business through its wholly-owned subsidiary LG Energy Solution Ltd.

OUTLOOK UPGRADE BY MOODY’S

The latest bond issues come after Moody’s Investors Service on Thursday raised its credit rating outlook for LG Chem to positive from stable.

Moody's has assigned a Baa1 rating to LG Chem’s proposed senior unsecured dollar notes to finance green projects.

S&P has assigned a BBB+ rating with a stable outlook to the LG Chem notes.

"LG Chem's Baa1 ratings reflect the company's operating stability, supported by its solid market position in the Asian petrochemical market and improving business diversification due to its fast-growing battery business," said Wan Hee Yoo, a Moody's vice president and senior credit officer.

“The ratings also reflect the company's ability to maintain low financial leverage despite its large capital spending."

Moody’s said the positive outlook on LG Chem reflects the rating agency’s expectations that the chemical firm’s financial leverage will remain healthy, supported by structural earnings improvement in its petrochemical and battery businesses.

EARNINGS TO RISE SHARPLY

Moody’s said it expects LG Chem’s earnings to rise sharply this year.

LG Chem’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is expected to rise to around 7.1 trillion won this year, up 73% from 4.1 trillion won in 2020, Moody’s said in a note.

The growth will be supported by strong product spreads in its petrochemical business, as well as solid sales growth and improving profitability at its battery business, it said.

The planned initial public offering (IPO) of LG Energy Solution later this year will also bring in “large proceeds and provide a significant financial buffer at the LG Chem consolidated level against its ongoing large capital spending,” said the Moody’s analyst.

Moody’s expects LG Chem’s reported debt to increase to 13 trillion-14 trillion won by the end of 2021 from around 10.2 trillion won as of the end of 2020, despite proceeds from asset sales.

Moody's said it could upgrade LG Chem's ratings if the company maintains strong earnings while containing debt growth through robust operating cash flow or large non-debt funding activities.

Write to Hyun-il Lee at hieuneal@hankyung.com
In-Soo Nam edited this article.