How high will LG Energy Solution soar?

Customers enter Shinhan Financial Investment's Yeouido branch on the last day of a two-day subscription period for stock allotment of LG Energy Solution IPO, Jan. 19. Newsis

By Anna J. Park

As LG Energy Solution (LGES) logged an all-time record in competition for its IPO subscriptions, among both institutional and retail investors, the market's attention is now on how high the newly offered shares will rise upon its KOSPI debut scheduled for Jan. 27.

Given the competition fervor as well as the limited amount of available stocks on the listing day, it is expected that the share price of the global secondary battery manufacturer will likely hit the daily upper limit of a 30 percent increase, in addition to double its initial offering price.

The price of a newly offered share could range between 90 percent and 200 percent of the initial offering price upon the kick-off for official trading on the first day, and another 30 percent increase is possible from that starting price. This means LGES' share price could rise up to 780,000 won ($652) on the first day of the listing, from its initial offering price of 300,000 won.

If it achieves the maximum possible increase on the first day of trading, the market cap of the battery company would stand at some 182 trillion won, which is the second-largest market cap among the main benchmark KOSPI companies, following only Samsung Electronics' market cap, which is around 447 trillion won as of Monday.

As market analysts view that an appropriate market cap for the company would be around 100 trillion won to 130 trillion won, they forecast that initial bubbles in the stock's valuation will be removed during the early phase of the listing, while the price will be adjusted to the target market cap by the end of February.

However, it is highly likely that the share price would mark a soaring move upon the listing later this month. It is estimated that only 8.95 percent of LGES shares, or 20.7 million, will be available for trading on the first day of the listing. The figure is way lower than some of last year's successful major IPO stocks, such as KakaoBank's 22.6 percent and SKIET at 15.04 percent.

“Most of the shares available for sale on the first day of the listing belong to retail investors, who were allotted a limited number of stocks. If retail investors go on a buying spree on the stock, the amount of shares available for trading would be further constrained (raising the stock price),” said Kim Kwang-hyun, analyst at Yuanta Securities.

In addition to retail investors' possible buying spree, a strong passive influx of money from funds that track global major stock indices, including the FTSE and MSCI, is also expected to further stoke the share price. About 1 billion won ($837 billion) to 1.5 billion won worth of passive funds is expected to be drawn for the LGES stock.

LG Chem, the largest shareholder of LGES, currently holds 81.84 percent of its shares, and the company's employees' association holds another 3.48 percent.

Customers sit at Shinhan Financial Investment's Yeouido branch on the first day of a two-day subscription period for the stock allotment of LG Energy Solution IPO shares, Jan. 18. Yonhap

As hype is built around the massive IPO, brokerage companies handling the underwriting process of the listing are expected to rake in an enormous amount of money from the IPO. A total of 11 securities firms ― including the two main book runners of KB Securities and Morgan Stanley as well as joint lead managers of Daishin Securities, Shinhan Financial Investment, Goldman Sachs, Merrill Lynch and Citigroup Global Markets ― are expected to earn 213 billion won at a maximum from the LGES IPO.

In particular, KB Securities is estimated to reap some 42.5 billion won, as lead underwriter of the offering process. The profit comes from various commission fees and underwriting fees, as well as a performance fee.