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Proxy adviser

Top proxy adviser ISS approves of LG Chem’s battery spin-off

Oct 16, 2020 (Gmt+09:00)

LG Chem Ltd.’s plan to spin off its promising battery business has won support from the world’s top proxy adviser Institutional Shareholder Services Inc. (ISS), shortly after another proxy adviser Glass Lewis urged investors to vote for the hive-off, according to securities industry sources on Oct. 16.

ISS said in a recent report that the spin-off announcement is a reasonable decision in that the soon-to-be-launched battery unit will be able to tap diverse funding sources to finance its heavy investment. LG Chem puts its annual capital spending on its battery business at 3 trillion won ($2.6 billion).

It added that LG Chem’s aggressive investment in the battery business has weighed on the company’s financial conditions and led to its global credit rating downgrade.

In December 2019, rating agency Standard & Poor’s downgraded LG Chem’s credit rating by one notch to BBB+ from A-, citing the Korean company’s rising capital spending for battery production capacity expansion.

The report came after Glass Lewis advised its clients to vote in favor of the battery unit's spin-off, saying the hive-off is just a “technical” matter to be implemented as part of its internal business reorganization.

LG Chem’s shareholders won’t be affected by the move, as the battery unit will be 100%-owned by the company even after the spin-off, Glass Lewis said.

ISS and Glass Lewis are the world’s two leading proxy advisory firms for hedge funds, mutual funds and other investment organizations. They often exercise their clout over institutional investors in major corporate decisions.

ISS played down any possible negative impact of the spin-off plan on the remaining entity, saying the carve-out may raise the remaining firm's corporate value, according to the sources.

LG Chem is set to approve the battery business' carve-out into a separate entity at a shareholders meeting on Oct. 30. Once approved, the new battery entity will be launched on Dec. 1.

On Wednesday, LG Chem said it will offer a dividend of at least 10,000 won a share and spend at least 30% of net profit in dividend payments over the next three years in an effort to appease investors concerned about share value dilution.

ISS welcomed the new dividend policy announcement as part of its efforts to improve shareholder value, alongside LG Chem's steps taken to enhance communication with shareholders after the spin-off announcement.

The spin-off plan is widely expected to be approved at LG Chem’s shareholder meeting given that LG Corp., the group’s holding company, owns a 30% stake in LG Chem as its largest shareholder. The National Pension Service is the No.2 shareholder in LG Chem with a 10% stake.

Foreign investors hold 38% of LG Chem.

Write to Jae-Yeon Ko at yeon@hankyung.com

Yeonhee Kim edited this article.

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