| LG Energy Solution (LGES) employees pose with the company's battery products at the InterBattery tech fair at COEX convention center in Seoul, June 8. Courtesy of LG Energy Solution |
IPO delay won't hurt LGES's corporate valuation: analysts
By Baek Byung-yeul
LG Energy Solution (LGES) is considering delaying its initial public offering (IPO), as the world's top-tier electric vehicle (EV) battery producer is asked to address looming external challenges.
In 2020, LGES was spun off from LG Chem, a chemical, battery and biotech arm of LG Group with an aim to make a KOSPI debut in October of this year.
Under the plan, LGES has been discussing with stock market operator Korea Exchange (KRX) to fix relevant specifics and finalize necessary documentation before its KOSPI listing. It submitted its pre-listing review application to KRX, but the bourse operator said Thursday while the related process is still under way, the review usually takes around 45 days.
“The KRX is conducting a review of IPO requests submitted by LGES,” a KRX official said. Regarding the delay of the IPO, the official said “it is difficult to elaborate on the reason for the postponement.”
LGES also said it applied for an extension of the screening period for the preliminary listing review to the KRX on Aug. 10, but there is no change in its plan to list the company on the local bourse.
Under the KRX regulation, the screening period may be extended if an additional review process is required or data submission is delayed when critical issues occur in the screening process. Also, there is no restriction on the extension of the review process.
Though LGES applied for the extension of the review process in early August, a significant reason for the possibility of the postponing the scheduled IPO is GM's latest decision to expand its battery recall campaign. LGES is the top battery supplier for GM. They said the IPO process could be delayed as it takes time for LGES to reflect the recall cost before wrapping up the IPO paperwork.
GM had initially recalled only about 69,000 Bolt EVs, powered by LGES batteries and produced between 2017 and 2019, but later expanded the recall target to the latest production amount. On Aug. 20, GM said it would expand its recall campaign of Bolt EVs equipped with LGES batteries over potential fire risks. The carmaker added the recall costs will total $1.8 billion.
Cho Hyun-ryul, an analyst at Samsung Securities, said the recall cost should LGES be held responsible is estimated to be between 0.42 trillion won ($360 million) and 0.55 trillion won.
“Not only GM's Bolt EV, but also Volkswagen's ID.3 EV have highlighted fire risks of EVs. Only when the share of recall costs with GM is confirmed and evidence suggests that fires of the ID.3 are not caused by LGES batteries will the market be able to eliminate misunderstandings,” Cho said in a note to clients.
Another analyst said LGES will be accountable for GM's recall, but the company's value won't be damaged in the long run.
“Market concerns are that LG Chem's share will fall as such recalls continue in the future. It is difficult to predict whether the recall issue will continue in the mid-term, but at least this issue is not due to LG Chem's lack of technology. It is because mass producing of batteries requires higher level of technologies,” said Park Yeon-ju, an analyst at Mirae Asset Securities analyst.
“It is inevitable that EV markets will expand in the mid-term and few companies are able to supply high-quality batteries. As a result, there is a low possibility that LG Chem's market share will fall or battery margins will slow down.”