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IPOs

LG Energy sets new IPO record with $9.65 trillion investor demand

The sheer size of bids signifies increased opportunities for blue-chip firms amid changing perceptions of the Korean capital market

By Jan 12, 2022 (Gmt+09:00)

LG Energy Solution's EV battery system
LG Energy Solution's EV battery system

LG Energy Solution Ltd., the world’s second-largest battery maker, has set a new record for an initial public offering with demand for its shares from institutional investors reaching $9.65 trillion, the highest amount of bids ever in South Korea.

The market fever for battery shares, flying high alongside the take-off of electric cars, will continue for a while, as investors look to battery plays as safe bets amid emissions-free initiatives globally, analysts said.

According to investment banking sources, LG Energy has received bids worth 11,500 trillion won, or $9.65 trillion, from more than 1,700 institutional investors during the two-day bookbuilding process, which ended on Wednesday.

The order bookbuilding with large investors is designed to gauge their interest in the share sale, allot stocks in proportion to their bids and set the final IPO price.

LG Energy, which is offering 34 million shares via the IPO, has said it wants to sell them in a price range of 257,000 won-300,000 won apiece.

Given the unprecedently strong demand, industry watchers said the order book for institutional investors will be more than 1,000 times oversubscribed and LG Energy will likely price its IPO at the top end, allowing the company to raise as much as 10.2 trillion won, the biggest ever IPO in Korea.

LG Energy will officially announce the subscription rate and its IPO price on Friday.

Ultium Cells, a joint venture between LG Energy and GM
Ultium Cells, a joint venture between LG Energy and GM

PERCEPTION OF KOREA’S CAPITAL MARKET

“The sheer size of bids for the IPO shows that the investor perception of Korea’s capital market has changed, offering more growth opportunities for blue-chip companies,” said an investment banking industry official.

Of the 18.7 million shares allocated for institutional investors, LG Energy plans to offer about 60% to foreigners, with the remaining 40% going to local institutions.

“We want to attract more foreign investors, which we believe will also help elevate our enterprise value,” said an LG Energy official.

About 60% of the investors who participated in the institutional subscription have already agreed to a lock-up clause, promising not to sell the stock post-IPO for a certain period of time, according to sources.

At the top of the price range, LG Energy will have a market value of 70.2 trillion won ($58.9 billion), making it Korea’s third-most valuable company after Samsung Electronics Co. and SK Hynix Inc.

LG Energy's plant in Ochang, Korea
LG Energy's plant in Ochang, Korea

UNDERRATED

Analysts said the valuation may be underrated as LG Energy controls 20.5% of the global electric vehicle battery market, trailing China’s CATL with 31.8%. The market leader’s corporate value is estimated at over $196 billion.

On Wednesday, LG Energy’s local rivals also rose on the main Kospi as investors snapped up battery stocks in the belief that they are also undervalued.

SK Innovation Co. surged 9.5% to close at 264,500 won, while Samsung SDI Co. advanced 5.1% at 659,000 won. LG Chem Ltd., the parent of LG Energy Solution, gained 5.3% at 773,000 won.

LG Energy’s IPO comes as the company is striving to overtake CATL in the fast-growing market.

On Monday, LG Energy Chief Executive Kwon Young-soo vowed to overtake the Chinese company in the near future, saying that LG has an order backlog worth 260 trillion won, larger than that of CATL, and that he expects revenue growth of more than 25% over the next three years.

LG counts General Motors Co., Tesla Inc. and Volkswagen among others as its major global clients.

With the IPO proceeds, LG plans to expand its production capacity and increase research and development in Korea and abroad.

The public subscription for the IPO is set for Jan. 18-19 and the market debut is scheduled for Jan. 27.

Write to Ye-jin Jun and Jae-Yeon Ko at ace@hankyung.com

In-Soo Nam edited this article.
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