LG Energy Solution IPO may be behind stock market retreat

The benchmark Kospi and junior Kosdaq have retreated for the past month as investors offloaded a combined 9.4 trillion won ($7.8 billion) in shares in what many see as stepping up preparations for a battery maker listing, which is expected to set a record later this month.

LG Energy Solution, the world’s second-largest battery maker after China’s CATL, is expected to raise 12.7 trillion won in its initial public offering set for Jan. 27, with shares priced 300,000 won each, at the top of the range, which takes the company’s value to 70 trillion won.

Domestic and foreign institutional investors have placed bids worth around 15 quadrillion won, reflecting keen investor interest in the battery marker’s growth potential as the world market for electric cars expands.

The deal has been at the center of the market since last year as it is undoubtedly the largest IPO ever in South Korea. The battery maker is expected to surpass SK hynix, valued at 93 trillion won after Samsung Electronics, the most valuable company here with a market cap of 461 trillion won.

“The LG Energy Solution shares -- 300,000 won apiece -- are undervalued and they could climb as high as 430,000 won, which would take the battery maker’s value to 101 trillion won,” said Ju Min-woo, an analyst at NH Investment & Securities.

Local brokerages offer a similar estimate, saying the battery maker, which commands more than 20 percent of the global electric vehicle battery market, supplies key automakers like Tesla, General Motors, Hyundai Motor and Stellantis and maintains the highest number of joint ventures with them among local rivals.

“Most importantly, we believe LG has unmatched orders and capacity to deliver batteries,” Ju said.

LG Energy Solution CEO Kwon Young-soo openly backed the market estimate.

“We’ve received more orders. We‘ll be overtaking our Chinese rival. And the market capitalization gap between us -- LG Energy Solution and CATL -- will also shrink. I certainly see opportunities,” Kwon said at an online press conference.

Kwon, who repeatedly referred to CATL’s market value, now standing at 236 trillion won, also expressed confidence in fending off challenges from automakers trying to make batteries on their own, citing supply issues and patent infringement as hurdles.

“Keeping the supply steady while using battery technologies without making steep royalty payments poses a challenge,” he said.

Meanwhile, retail investors are racing to capitalize what would be a record IPO, having opened accounts at the brokerages underwriting the battery maker listing. The underwriters have said they saw as much as three times the number of new clients this month, compared with the same period last year.

“Placing bids would be tricky this year, though, for individual investors. They will have to think about with which underwriters they stand the best chance to secure shares,” an analyst with knowledge of the matter said.

LG Energy Solution is offering a little over 10 million shares -- about 25 to 30 percent of 42.5 million shares in total -- to retail investors. Half of that equally go to investors who have made bids on at least 10 shares and the rest are given proportionally, with investors who have paid more upfront cash snatching more shares.

Kim Young-hwan, a market strategist at NH Investment & Securities, said investors will continue to offload stocks to raise capital for the listing, but the stock market would not take a hit from the capital outflow.

“The stock market will absorb that money later once the battery maker goes public. It’s the US Fed’s sooner-than-expected hike that we need to keep our eyes on,” Kim said.

By Choi Si-young (siyoungchoi@heraldcorp.com)