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Tesla supplier: battery cell manufacturer LG Energy ahead of record IPO in Seoul

2022-01-13T06:22:51.253Z


Electromobility has been hotly traded on the world's stock exchanges for months. A new share will be added at the end of January: LG Energy, the world's second largest battery cell manufacturer, is planning a record IPO in South Korea.


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LG Energy's booth:

The Korean battery cell manufacturer is going public at the end of January

Photo: JUNG YEON-JE / AFP

January 27, 2022 will be a remarkable date for both the stock market in South Korea and the global electric car industry: On that day, the South Korean battery cell manufacturer LG Energy Solution, a subsidiary of LG Chem, plans to go public in Seoul. The final price range for the trading debut is set to be announced next Friday. But it is already clear: It will be by far the largest IPO South Korea has seen so far.

According to stock exchange records, LG Chem plans to issue a total of 42.5 million shares, of which 8.5 million will come from the Group's holdings.

The company plans to reissue 34 million papers, at an estimated price of 257,000 to 300,000 South Korean won.

The IPO would have a volume of up to 12.8 trillion won or 10.8 billion dollars and would far overshadow all comparable transactions on South Korea's stock exchange so far.

For comparison: the previous record is held by the insurer Samsung Life Insurance, which started on the stock market in Seoul in 2010.

Samsung Life took in Won 4.9 trillion on its IPO at the time.

The demand for the shares is apparently already high. As the news agency Reuters reported this week, with reference to informed sources, institutional investors are said to have already submitted bids totaling 80 billion dollars for the LG Energy papers. That is more than 13 times the block of shares of six million dollars, which is intended for this group of investors, according to Reuters.

It is therefore quite possible that the issue price for the papers will be set at the upper end of the price range.

LG Energy Solution will then have a market value of around $ 59 billion.

The battery cell manufacturer, whose customers include car companies such as Tesla, General Motors, Hyundai and Volkswagen, will probably be the third highest rated company in the country right from the start - behind electronics giant Samsung and chip manufacturer SK Hynix, but ahead of mother LG Chem.

LG Energy thus also documents its role as the second largest cell supplier in the world.

The South Korean competitors Samsung SDI Co. and SK Innovation Co. are currently valued on the stock exchange with the equivalent of around 40 billion dollars and around 16 billion dollars, respectively.

China's number one Contemporary Amperex Technology Ltd (better known as CATL) is still way ahead as the world market leader with a market value of almost 200 billion dollars.

In the past year alone, the CATL share rose by around 67 percent before suffering a setback in recent weeks.

However, observers sometimes suspect calculus behind the comparatively modest stock market launch of LG Energy.

The company was valued too cheaply when it went public, says industry analyst

Rho Woo-ho

from Meritz Securities.

Does LG Energy play at the issue price?

The targeted production capacities of both companies for the year 2025 are identical, according to the expert, according to the Reuters news agency. Rhos assumption: LG Energy deliberately chose a low price in order to initially be well received by the market. In addition, the parent company LG Chem will keep 80 percent of the shares, which will lead to a narrow market for the papers, in which demand could quickly drive the price up.

Either way, the IPO shows how much electromobility is still popular with investors. Both automakers and suppliers in this area have been hyped on the stock market for months. One reason: market observers are forecasting strong growth for the industry in the future as well. The sale of electric cars, which analysts estimate at a good four million vehicles in 2021, is likely to multiply to more than 31 million vehicles by 2030, according to the management consultancy Deloitte. The BloombergNEF agency expects the number of electric cars sold, including plug-in hybrid vehicles, to rise from around six million in 2021 to around 14 million in 2025.

An expanding market in which LG Energy wants to make a lot of money.

"With the IPO, we are responding to the growing demand for lithium-ion batteries," said LG Energy CEO

Kwon Young Soo

recently.

The company will use the proceeds from the sale of shares to cope with investments, pay off debts and finance working capital, quoted the "Wall Street Journal" from IPO documents.

LG Energy wants to become world market leader

Compared to the competition, LG Energy is already in attack mode.

Company boss Kwon Young Soo announced earlier this week that China's main rival CATL will be left behind because of its broader customer base, measured in terms of market share.

That could be difficult, however. CATL is the top dog in the most important car market in China and is reliably supported by the political leadership in Beijing. Figures from the research company Bernstein show how the Chinese succeeded in this constellation in opening up the global battery market. According to this, the Japanese Panasonic group, as the central cell supplier for Tesla, was still the global market leader in 2019, with a share of more than 30 percent. CATL and LG Energy followed in second and third place. In 2020, LG then took over the market leadership, with a share of almost 27 percent. Panasonic fell back to a good 21 percent, CATL followed with just under 20 percent.

In 2021, however, the Chinese turned up the pace: with a market share of more than 29 percent, they clearly took the lead.

LG Energy (22.4 percent) and Panasonic (13.7 percent) are only second and third.

LG Energy has mastered the technology and is able to produce large numbers quickly, writes a Bloomberg commentator.

Koreans have only recently started earning money;

In 2020, the investments in the expansion of capacity ate up the revenues, which had risen to a good nine billion euros.

In the first two quarters of 2021, the company posted solid profits in line with the approaching IPO.

For the IPO, however, LG Energy is setting new profit targets.

The operating margin is to be pushed into the double-digit percentage range through lower material and personnel costs.

For comparison: According to Bloomberg, competitor CATL already has a margin of 12 to 15 percent.

But not all costs can be precisely planned in advance.

Last year, General Motors had to recall more than 100,000 Bolt electric models because their batteries were found to be at risk of fire.

The power cells of the vehicles came from LG Energy - the company therefore had to set aside almost a billion dollars for the cost risks from the recall.

After all, there are long-term plans in South Korea: The company signed a ten-year contract with the Canadian recycling company Li-Cycle to secure raw materials for future production.

From 2023, Li-Cycle is expected to deliver 20,000 tons of nickel, one of the most important components of many e-car batteries, to LG.

In return, the Koreans are sending some of their battery waste to Canada for recycling.

It remains to be seen whether this will help in the fight against battery power from China.

Source: spiegel

All news articles on 2022-01-13

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