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Batteries

LG Chem says dual listing of battery subsidiary possible, rules out pre-IPO

Sep 18, 2020 (Gmt+09:00)

South Korea’s LG Chem Ltd. may list its soon-to-be-launched battery subsidiary not just on the local bourse but also on overseas exchanges to raise cash needed for its large-scale investment in the electric vehicle battery business.

Cha Dong-seok, chief financial officer at LG Chem, also said during the Sept. 17 conference call that the company is not seeking a pre-IPO share sale or strategic investors to expand its capital base.

“When we’re going to raise money in the market, we have to think about the size and various ways to raise it. We’re not ruling out listing the battery business on overseas exchanges. We’re open to it,” Cha said, while referring to the case of another LG Group unit, LG Display Co., formerly known as LG Philips LCD, which raised $1 billion in 2004 in the dual Seoul- and New York-listed IPO.

Touching upon the timing of the IPO, he said it will take at least a year to sell the battery business’s new shares in an initial public offering even if the company begins the necessary steps now.

LG Chem's spin-off plan angers retail investors concerned about share dilution

RETAIL INVESTORS ANGERED BY SPIN-OFF PLAN

LG Chem, the country’s largest chemicals maker, held the conference call with analysts Thursday in response to the two-day share price plunge as retail investors, disappointed by the company's announcement to spin off its lucrative battery business, dumped the stock.

On Thursday, shares of LG Chem fell as much as 9% in Seoul, the biggest intraday drop since March, before closing down 6.1% at 645,000 won. The stock fell 5.4% the previous day.

On Friday, LG Chem shares closed 2.6% higher at 662,000 won, after rising as much as 5% during the day as the company worked to appease investors concerned about share value dilution following the spin-off.

The company said on Sept. 17 it will split off its electric-car battery business into a separate entity, tentatively called LG Energy Solutions, to carve out value as global demand for such vehicles increases rapidly.

The business, the world’s top maker of EV batteries, will be wholly owned by LG Chem and established on Dec. 1 after approval by its shareholders on Oct. 30.

Analysts welcomed the company’s decision, saying the battery business will be more fairly valued by the market if listed separately, but the spin-off news rattled individual stockholders who fear their share value will weaken should the new company issue new shares in an IPO.

NO CHANGE IN REMAINING ENTITY’S FUNDAMENTALS

LG Chem CFO Cha said LG Chem’s fundamentals won’t change as the company will own 100% of the new subsidiary and any profits from the battery business will be fully reflected in its consolidated financial statements.

“Even in the case of an IPO (of the new company), the money raised will be spent on projects to enhance the battery subsidiary’s corporate value, which in turn will benefit LG Chem’s existing shareholders,” he said.

He said LG Chem aims to keep its stake in the separated entity to a minimum of 70-80% even after an IPO.

He said the new company’s revenue guidance of 30 trillion won in 2024 is “conservative” given the growth of the global EV battery market.

“We expect the global EV battery market to rise at an annual pace of 30%. The sales target of 30 trillion won is conservative. Undoubtedly, we see upside potential,” he said.

By Jae-Yeon Ko

yeon@hankyung.com

In-Soo Nam edited this article

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