LG Chem stocks rebound as split-off jitters ease

The stock price of petrochemical-to-battery company LG Chem rebounded Friday after a sharp loss immediately after its announcement during trading hours Thursday that it would split off its battery operation.

LG Chem shares climbed 3.3 percent in the Friday trading session. LG Chem is the fifth-largest stock on the main bourse, Kospi, with 47.1 trillion won ($40.6 billion) market cap.

The slight recovery came after the Seoul-based company unveiled plans to carve out its battery unit under a newly created entity tentatively named LG Energy Solution. Media speculation prior to the announcement also stirred up concern among retail investors, prompting an 11.2 percent stock price fall from Wednesday to Thursday.

Under South Korean law, two-thirds of shareholders present at the shareholders meeting are required to vote to proceed with the planned split-off, while the votes must represent at least one-third of the company’s shareholders. The extraordinary shareholder meeting is set to take place Oct. 30.

LG Chem’s retail investors, who own a combined 54.33 percent stake in the company, expressed dissatisfaction with the conglomerate’s decision to split off what is considered the chemical firm’s most promising business, instead of pursuing a spinoff that would have offered each LG Chem shareholder proportional voting rights in the new EV battery business entity. LG Chem shareholders are also concerned about a stock dilution following a future initial public offering by LG Energy Solution.

Moreover, the history of the Korean stock market indicates that a split-off could signal short-term downward pressure on the share price of the existing business unit.

Samsung SDI’s share price was largely boxed in for over a year after it announced a chemical business split-off in November 2015. The same was true for Ecopro, an environmental materials company, which decided to split off its secondary battery business in February 2016. The decision of the Kosdaq-listed firm weighed down on its stock price until mid-2017.

In a conference call Thursday, LG Chem Chief Financial Officer Cha Dong-seok played down the concern that the split-off decision might be detrimental to LG Chem shareholder value, saying the LG Energy Solution IPO would take at least a year.

Meanwhile, Korean conglomerates are rushing to carve out businesses to streamline their governance structures.

KCC on Thursday rolled out plans to split off its silicone manufacturing operation, while Daelim Industrial disclosed earlier this week that its construction business will be spun off from the existing entity, which will serve as a holding company of the Daelim conglomerate. Market analysts also say SK Telecom is likely to split off its mobile operation and turn the existing company into an intermediate holding firm, once a 500 billion won share buyback is complete.

By Son Ji-hyoung (consnow@heraldcorp.com)