Baek Byung-yeul is a journalist at The Korea Times focused on cultural content, including films and cultural events in South Korea. You can contact him at baekby@koreatimes.co.kr to share your insights.
LG CNS could seek IPO on KOSPI
LG Science Park in Magok, southwestern Seoul, where LG CNS headquarters is located / Courtesy of LG CNS
By Baek Byung-yeul
By Baek Byung-yeul
While LG Group is enjoying the soaring performance of its affiliates, eyes are on LG CNS as to whether the system integration arm of the group will seek an initial public offering (IPO).
An industry official said Sunday that it would be appropriate for LG CNS to go for a listing early next year because this will become a chance to further improve its corporate value and help increase the valuation of LG Group.
By listing its IT service affiliate on the KOSPI, LG Corp., the parent company of LG CNS and LG Group's holding company, will be able to secure additional funding for possible merger and acquisition activities in the future, the official added.
“As LG Group has been seeking ways to improve the corporate value of its affiliates, it would be proper for LG CNS to go into the IPO process to be listed on the KOSPI market next year,” the official said.
As the official mentioned, LG Group affiliates are keen on promoting corporate values. LG Chem is finalizing a spin-off process of its electric vehicle (EV) battery-manufacturing division and LG Electronics is also speeding up to reduce its deficit and improve efficiency of its struggling smartphone business while trying to generate more profits from its car components business.
LG CNS is one of the country's top system integration companies along with Samsung SDS and SK C&C. Like other IT system service firms owned by large corporations, LG CNS is also generating profits from doing the IT work of LG Group affiliates.
In the third quarter, LG CNS recorded 798.8 billion won in sales and 57.1 billion won in operating profit, a 0.1 percent ㅑincrease and 27 percent increase from the same period in 2019, respectively. The company said the increased earnings were thanks to more contract orders from LG Group affiliates.
With the surge of emerging technologies such as artificial intelligence and machine learning, LG CNS is forecast to do more in the IT services industry. In the half-year report sent to the Financial Supervisory Service, LG Corp. said its affiliate LG CNS has a competitiveness in the IT service industry as the company is capable of operating in future technology businesses such as smart factories, cloud computing and big data.
As of Nov. 11, the stocks of LG CNS are priced from 74,000 won ($66.60) to 75,000 won according to 38 Communication, a local private trading platform for unlisted shares.
LG CNS was forecast to go through an IPO process years ago in order to reduce regulatory concerns in regard to doing too many intra-group business transactions with LG Group affiliates.
One of President Moon Jae-in's election pledges in 2017 was to tighten rules to prevent conglomerates from excessively outsourcing contracts or assigning work to subsidiaries and affiliates.
In response, the Fair Trade Commission (FTC) toughened the rules after Moon took office, proposing the revision of the fair trade rule two years ago.
Under the new law, the FTC will be able to restrict intra-group deals of both listed and unlisted companies in which the owner family owns more than a 20 percent stake regardless of whether the companies are listed or not. Previously, the FTC curbed large companies that owned stakes larger than 30 percent in listed or 20 percent in unlisted companies. In accordance, LG Corp., which owned an 85 percent stake in LG CNS, sold 35 percent of its shares to Macquarie PE in 2019.
Another industry official agreed that LG CNS may attempt an IPO given Macquarie PE would favor an exit strategy to realize its return on investment.
“At this moment, the group seems to be paying more attention to the IPO process of LG Energy Solutions, a battery-manufacturing spin-off of LG Chem. However, once the LG Energy Solution work is finalized, chances are likely that the group will try to list LG CNS,” the industry official said.