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Will LG Chem rebound without EV battery division?

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LG Chem CEO Shin Hak-cheol speaks during an online press conference, July 14, 2021. Courtesy of LG Chem
LG Chem CEO Shin Hak-cheol speaks during an online press conference, July 14, 2021. Courtesy of LG Chem

By Baek Byung-yeul

LG Chem has been attracting attention from both investors and industry analysts over whether it will be able to retain corporate value after its key battery division, LG Energy Solution (LGES), goes public on Jan. 9.

LG Chem shares have shown weak performance in recent weeks as many retail and institutional investors dumped the stocks to buy shares of the country's largest electric vehicle (EV) battery maker.

It is inevitable for LG Chem's future value to fall when the EV battery division, one of its core businesses, gets listed on the stock market, analysts said Monday. But, they also mentioned LG Chem is strengthening investments in battery materials such as cathode and eco-friendly materials, adding that its value could rebound after an adjustment period.

LGES has the second-largest share in the global battery market after CATL of China, supplying its battery cells to numerous global carmakers such as GM, Mercedes-Benz and Hyundai Motor.

In September 2020, LG Chem decided to separate its battery business unit into a new company LGES to raise funds for additional investments.

As the initial public offering (IPO) of LGES approaches, LG Chem's stock price, which once exceeded 1 million won ($840) per share in early 2021, has currently fallen to around 700,000 won.

For the LGES IPO, institutional investors are showing strong interest, placing bids worth 15.2 quadrillion in a two-day book-building session last week. The company said the competition ratio for the book building was 2,023.37-to-1.

On Tuesday and Wednesday, a book-building session for retail investors will be held.

Analysts said LG Chem is likely to see a short-term fall in its stock prices due to the double-counting concerns, in which the parent company's value falls after its subsidiary is listed. Currently LGES is a wholly owned subsidiary of LG Chem but the parent company's stake after listing will be 81.84 percent.

"Short-term sentiment of investors in a company will inevitably weaken ahead of the listing of its subsidiary," Cho Hyun-ryul, an analyst at Samsung Securities, said. "The listing of a high-growth subsidiary negatively affects investor sentiment as substitutes occur from an investment perspective."

In response to the concerns, LG Chem recently said that it will become a strong player not only in chemical products but also in the EV battery materials sector as it will build a new factory in Korea to produce high-nickel cathode, which are key EV battery materials.

The new factory, which will be built on a 60,000-square-meter site in Gumi, North Gyeongsang Province, will reach a 60,000 ton annual production capacity of cathode materials by 2025, enough battery cells for around 500,000 EVs.

"We will invest 500 billion won in the building of the cathode-manufacturing factory. Cathode materials, which account for around 40 percent of battery production costs, are key materials that determine core performance such as capacity and lifecycle of battery cells," an LG Chem official said.

Eco-friendly chemical materials such as biodegradable poly-butylene adipate terephthalate (PBAT) and poly-olefin elastomer (POE) for photovoltaic film are other growth potential items LG Chem is focusing on.

The company previously said it will invest 2.6 trillion won in the lead up to 2028 in order to build 10 plants in its Daesan complex, South Chungcheong Province.


Baek Byung-yeul baekby@koreatimes.co.kr


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