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Shareholder value

LG Chem’s No. 2 shareholder NPS opposes battery spin-off

Oct 28, 2020 (Gmt+09:00)

South Korea’s National Pension Service (NPS) has decided to vote against LG Chem Ltd.’s plan to split off its battery business at a shareholder meeting scheduled for Oct. 30.

The state pension fund, LG Chem’s second-largest shareholder with a 10.28% stake, reached the decision at an external advisory board meeting on Oct. 27.

Analysts, however, said the fund’s opposition will have little impact as most proxy advisers have recommended endorsement of the spin-off plan.

LG Group's headquarters in downtown Seoul 
LG Group's headquarters in downtown Seoul 

“We understand the intention and purpose of the company's spin-off plan. But we concluded that the move would undermine NPS' shareholder value, including the possibility of diluting equity value," the pension fund said.

LG Chem said in a statement that it regrets that the NPS opposes the plan when most domestic and foreign proxy advisers support it, adding it will actively communicate with shareholders.

LG Chem, Korea’s largest chemical and electric vehicle battery maker, angered its investors in mid-September when it announced plans to spin off its battery business into a separate entity to carve out value as global EV demand increases rapidly.

The company will launch the world’s leading EV battery business, tentatively named LG Energy Solutions, on Dec. 1 if approved by shareholders this Friday. 

The unit will first become a wholly-owned entity and then up to 30% of the company may be listed in an initial offering in about a year to raise funds needed for capacity expansion.

The spin-off news rattled individual stockholders who fear their share value will weaken should the new company issue new shares in an IPO.

Industry watchers said the state pension fund may have expressed its opposition to represent its clients’ fears over share dilution.

Battery researchers at LG Chem
Battery researchers at LG Chem

Analysts and leading proxy advisers welcomed LG Chem’s decision, saying the battery business will be more fairly valued by the market if listed separately.

The world’s two biggest proxy advisers, Institutional Shareholder Services (ISS) and Glass Lewis, have expressed their support for the spin-off, urging institutional investors to approve the plan at the shareholder meeting.

HIVE-OFF PLAN EXPECTED TO PASS

The hive-off plan is unlikely to be rejected at the shareholder meeting unless foreign investors join the NPS to vote against it.

Foreign investors own a combined 37.04% stake in LG Chem, while LG Corp., the group’s holding company, holds 30.06% of the company as its largest shareholder.

The passage of the spin-off plan requires approval by more than two-thirds of shareholders in attendance and by holders of shares amounting to one-third of those outstanding.

Write to Jung-hwan Hwang, Ji-Yeon Sul and Bum-Jin Chun at jung@hankyung.com

In-Soo Nam edited this article.

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