LG Chem to sell $1.6 bn stake in LG Energy to foreign investors

South Korea’s leading chemicals company LG Chem Ltd. is slated to secure about 2 trillion won ($1.6 billion) by selling a minority stake in its battery affiliate LG Energy Solution Ltd. to ramp up capital expenditures for a new growth engine.    

The parent company of the world’s No. 2 electric vehicle battery maker, LG Energy, with an 81.8% stake, has tapped Goldman Sachs, Citigroup Global Markets Korea Securities Ltd. and Hongkong and Shanghai Banking Corporation Ltd. (HSBC) for equity sales to foreign investors, according to investment banking sources on Monday. 

LG Chem will expand its facilities for its new growth sectors, eco-friendly materials, battery components and new drugs by selling the affiliate’s stocks, which surged 32% from January 2 of this year amid the battery cell stock boom, sources said.

LG Energy stock, which closed at 588,000 won on June 16 on the major Kospi exchange, fell to 561,000 won during morning trading after news of the stock sale was released.

The battery maker has a market cap of around 138 trillion won based on its closing price on June 16. LG Chem will sell about a 2% stake and maintain nearly 80% ownership.

LG Chem will pour 4 trillion won to expand its facilities this year. Last month, it broke ground on Korea’s largest plant for producing carbon nanotubes, an advanced material that enhances the thermal conductivity and tensile strength of electric vehicle batteries. 

In April of this year, the chemicals firm established a 1.2 trillion won joint venture with China’s Zhejiang Huayou Cobalt Co. to manufacture precursors, used for cathodes, the positive end of a lithium-ion battery.  

WORSENING PROFITABILITY

LG Chem has secured funds for capex by issuing corporate bonds and cash from operations. The company raised 800 billion won through its new bonds and took out 600 billion-700 billion won worth of foreign currency loans last January. 

The company has chosen an LG Energy stake sale rather than issuing more bonds as its performance has worsened and elevated interest rates have put pressure on new debts.

LG Chem posted 51.9 trillion won in revenue in 2022, up 21.8% from a year ago on a consolidated basis. But its operating income reached only 3 trillion won last year, plunging 40.4% on-year.

The company’s operating profit in the first quarter of this year was 690.7 billion won, dropping 32.7% from the same period last year.

Its earnings before interest, taxes, depreciation and amortization (EBITDA) were estimated at 12.2 times as of March, down from 21.1 in 2022 and 37.3 in 2021, indicating that the company’s profitability has weakened.

Write to Ye-Jin Jun and Seok-Cheol Choi at ace@hankyung.com
Jihyun Kim edited this article.