LG Chem struggles to soothe investor anger over battery spinoff

LG Chem researchers hold an electric vehicle battery module at the company's plant in North Chuncheong Province in this undated file photo. Courtesy of LG Chem

By Nam Hyun-woo

LG Chem is struggling to assuage investors' anger over its decision to spin off its battery business, with chief financial officer (CFO) promising the company will still own at least a 70 percent stake in the battery unit even after it goes public.

Some are demanding LG Chem to allocate shares in the battery unit to existing LG Chem shareholders, as they invested in the company due to the lucrative outlook for the battery business.

According to the company, Friday, CFO Cha Dong-seok held a conference call for investors late Thursday to allay concerns on any devaluation of the firm's shares after the spinoff.

During the call, Cha told them that “the company is yet to fix a schedule for the initial public offering (IPO), but it will take at least a year for the actual listing even if LG Chem started the process now.”

Based on the previous IPO cases, about “20 to 30 percent of shares will be made,” and LG Chem will continue to fold “an absolute stake” in the spinoff, Cha said.

LG Chem continued that the IPO will be good for existing investors because it will enable further growth of the battery business and this will be reflected in greater shareholder value for LG Chem.

“The IPO will help LG Chem to concentrate its resources and management capability on its petrochemical, material and bio businesses, which will enable a proper valuation of the company,” Cha said. “If necessary, LG Chem will make aggressive M&A efforts to improve those businesses' value.”

A stock price panel at Yonhap Infomax office in Seoul shows LG Chem's closing price Thursday, after the company announced it would spin off its battery business. Yonhap

This came after LG Chem shares plummeted on the news of the spin off. The shares shed 5.37 percent Wednesday on a news report that the company would announce the spinoff Thursday, and fell 6.11 percent again that day after the company made the announcement. The battery unit will be named LG Energy Solution, and LG CHem will initially own 100 percent of it.

Since the company said the main purpose of the spinoff was to secure funding for future investment in the battery business, the market expects the IPO to follow shortly.

After the company gave the explanation to prevent its price from falling further, it recovered by 3.26 percent to end at 666,000 won Friday, but investors are still expressing disappointment over the minor upward adjustment.

Unrest is especially noticeable among individual investors. Since LG Chem will have the 100 percent share of LG Energy Solution, existing LG Chem shareholders will not receive any LG Energy Solution shares, which is different from typical spinoffs which distributes shares of the subsidiary on a pro rata basis.

Due to this, LG Chem's individual investors claim they will no longer enjoy rewards from the growth potential of the electric vehicle battery business, with a posting on an online investor forum reading: “LG Chem is now Big Hit Entertainment without BTS.”

They also expressed doubts on LG Chem's explanation that LG Energy Solution's solid performance will result in improvements in the value of its parent, citing the cases of SK Holdings and its subsidiary SK Biopharmaceuticals.

SK Biopharmaceuticals, which debuted on the KOSPI, July 2, created an IPO wonder, jumping from its initial offering price of 49,000 won to 170,500 won, Thursday, as investors highly evaluated the company's growth potential. However, SK Holdings' share prices quickly declined from 297,000 won, July 1, to 211,500 won, Thursday.

Despite investors' concerns, analysts are publishing rosy outlooks for the spinoff.

“Even if there's an IPO of LG Energy Solution, there is no possibility of LG Chem losing control of the battery company, thus there is no concern about LG Chem's value being impaired,” Hana Financial Investment analyst Yoon Jae-sung said.

“Investors may feel they are deprived of a chance to directly own LG Energy Solution's shares, but this debate on the share allocation only clouds the point of the spinoff. For investors, improved value of the company would be the point of their investment, and what they need to do is judge whether the spinoff will improve the company's value.”