LG Energy Solution rises 68 percent in choppy market debut

Industry

Published: 27 Jan. 2022, 18:55 Updated: 27 Jan. 2022, 19:29

LG Energy Solution rises 68 percent in choppy market debut

LG Energy Solution CEO Kwon Young-soo, fourth from left, and officials from the Korea Exchange and underwriters of the company’s initial public offering celebrate the listing of the battery maker on Thursday at the Korea Exchange in Yeouido, western Seoul. [LG ENERGY SOLUTION]

LG Energy Solution ended its first day as a public company up 68 percent from its offering price and as Korea's second most valuable company.

With a market capitalization of 118.2 trillion won ($98.1 billion), it is bigger than SK hynix and smaller than Samsung Electronics.

Sold in the initial public offering (IPO) at 300,000 won, the shares closed at 505,000 won on Thursday after debuting that morning.

Trade was choppy throughout the day as stocks globally have been trading downward due to growing concerns about rising interest rates and doubts about speculative businesses and stocks.

The Kospi, which fell 3.5 percent Thursday, is down about 21 percent from its peak and, according to Bloomberg, in a bear market, while the Nasdaq Composite Index is down 16 percent from its high.

LG Energy Solution opened at 597,000 won Thursday morning, 99 percent higher than the subscription price, but less than the maximum allowed by the exchange. Stocks can open up to 100 percent above their offering price and then rise by an additional 30 percent that day.

The shares of LG Energy Solution hit 598,000 won in a minute, plunged to 450,000 won at 9:13 a.m. and traded up slowly from there.

Foreign investors dumped a net 1.5 trillion worth of LG Energy Solution, while retail investors offloaded 1.4 tillion won, according to the Korea Exchange. Institutions bought a net 3 trillion won.

Of the 42.5 million shares going public on the Korea Exchange, 10.97 million shares, or 26 percent, were allocated to retail investors. LG Chem holds 81.84 percent the company, while the association of LG Energy Solution employees owns 3.48 percent.

In the global market rout, electric vehicle (EV)-related shares are being aggressively sold, with Tesla down around 22.5 percent from its all-time high and Rivian shares down 66 percent.

In Korea, LG Energy Solution's EV battery competitors have been hit hard. SK Innovation was down 7.11 percent on Thursday, while Samsung SDI was down 6.16 percent.

LG Energy Solution's IPO comes after a year of disappointing IPOs in Korea, with many hyped shares performing poorly after listing. Shares of Krafton, developer of "PlayerUnKnown's Battlegrounds," are down 47 percent from the 2021 offering price. Kakao Bank is being traded near its offering price.

"The lower-than-expected result of LG Energy Solution's IPO was largely affected by the main index that has been trading bearish for quite a long time and the shares prices of big-sized companies that are in free fall recently," Lee Kyung-soo, a senior analyst at Hana Financial Investment, said.

"But it is very likely to go up shortly as demand will surge soon, as lots of investment companies are expected to include LG in their exchange-traded fund products."

Established as a wholly-owned subsidiary of LG Chem, the battery maker reported a 451.8 billion net loss in 2020. Revenues stood at 1.46 trillion won. In 2021, the company likely generated 850 billion won in net profit, according to a market consensus compiled by FnGuide, on 17.5 trillion won of revenues.

Based 2021 estimates, LG Energy Solution has a price-earnings ratio of about 140. Shenzhen-listed Contemporary Amperex Technology (CATL) is trading at about 146 times earnings.

CATL has 29 percent of the global EV battery market and LG Energy Solution 22 percent.

The battery maker initially planned to go public last year, but the listing was delayed after General Motors in August announced a massive recall of Chevy Bolts due to battery fires in vehicles with LG Energy Solution batteries installed.

LG Chem shareholders strongly objected the listing of the battery maker, arguing that it would cause a sharp drop in the chemical company shares as the battery business is one of its largest cash-cow businesses.

LG Chem, which rose as high as 1.05 million won on Jan. 14, closed at 610,000 won on Thursday, down 42 percent. It fell 8.13 percent Thursday alone. The company is now left with three divisions: petrochemicals, life sciences and advanced materials.

Last year, LG Energy Solution won on a 713-day legal fight with SK Innovation regarding a battery trade secret dispute. The two companies reached an agreement, with SK Innovation agreeing to pay 2 trillion won, 1 trillion won in cash and the remaining 1 trillion won in royalty payments.

BY SARAH CHEA [chea.sarah@joongang.co.kr]