LG Chem to spin off battery business as wholly owned subsidiary

LG Chem Ltd. will spin off its secondary battery business into a wholly owned subsidiary in a move to foster its automotive battery business, according to industry sources on Sept. 16.

The final decision will be made at a Sept. 17 board meeting. LG Chem plans to list the newly established subsidiary to raise funds that will be used to invest extensively in its battery facilities and R&D.

LG Chem has considered the split for several years but did not follow through due to the massive deficit that piled up from the battery business' investment costs alongside concerns that these may hike up the debt ratio and lower the company’s credit rating.

But the tables turned in the second quarter when LG Chem posted 155.5 billion won ($132 million) in operating profit from the battery business alone, becoming a frontrunner in the global electric vehicle (EV) battery market. As the battery business continues to thrive, LG Chem deemed the battery unit could become a standalone company backed by overwhelming orders from global car makers such as Tesla and BMW.

LG Chem is set to triple its battery production facility from 35GWh in 2018 to 100GWh by the year end, and to 120GWh by the end of 2021. The company is also building additional battery plants in the US and China. The company's aggressive expansion requires about 5 trillion won annually, which calls upon the battery business to find a way to self fund its investments.

A new battery subsidiary under LG Chem is expected to raise over 10 trillion won in a public offering which would help provide the capital it needs for facility expansion. The market estimates LG Chem’s battery division to be worth around 50 trillion won.

Also, market watchers say that when it stands as a separate entity, LG Chem’s battery division, as the world's leading battery maker, will rightfully receive its deserved market premium to industry peers such as China’s CATL and US-based Tesla.

“LG Chem technically dominates the battery market in Europe and it’s about time that they receive the premium they deserve,” said Jung-hyun Kim, a researcher at Kyobo Securities.

GLOBAL BATTERY MAKERS COMPETE TO GROW BIGGER

Other industry peers are also in the race to beef up production facilities, such as SK Innovation Co. which plans to raise 400 billion won through a bond issue to fund its overseas plant expansion.

Samsung SDI Co. has also injected about 1.7 trillion won -- about 20% of the company's revenue -- to boost its facilities alongside investing 6% of its turnover worth 409.2 billion won for R&D.

China’s CATL is also aiming to raise 2.3 trillion won by issuing bonds abroad for the first time to fund its large-scale expansion.

Meanwhile, LG Chem shares closed at 687,000 won, down 5.37% from the previous day. The company posted 6.9 trillion won in revenue and 571.6 billion won in operating profit in the second quarter.

Write to Jae-kwang Ahn at ahnjk@hankyung.com