Tesla battery maker LG Energy Solution surges on record market debut

Shares of LG Energy Solution surged on its market debut, propelling the electric battery maker to become South Korea’s second-most valuable company after raising Won12.8tn ($10.6bn) in the country’s biggest initial public offering.

The shares opened up 99 per cent at Won597,000 on the IPO price as investors rushed to capture a piece of the global electric vehicle industry. The stock closed 15 per cent lower at Won505,000.

The strong debut made LGES, which supplies Tesla, General Motors and Volkswagen, South Korea’s second-largest stock after Samsung Electronics. The IPO, the world’s biggest deal this year, attracted bids from institutional investors worth $13tn this month, according to the co

But the company’s market capitalisation of Won108.6tn ($90bn) is dwarfed by the more than $200bn value of industry leader Contemporary Amperex Technology. LGES plans to use the IPO proceeds to triple its production capacity by 2025 to meet growing demand for electric vehicle batteries and take on its bigger Chinese rival.

Analysts were upbeat about LGES’s business prospects. Electric vehicle sales are forecast to account for almost a third of all new vehicles by 2030, according to Deloitte. LGES controls about 20 per cent of the global electric vehicle battery market against CATL’s 32 per cent, reported SNE Research.

“The company will benefit from the Buy American Act although its low profitability and rising raw material prices remain a concern,” said Kim Young-woo, an analyst at SK Securities.

Kim said US-China tensions were expected to help LGES increase its market share outside China, where it is struggling to expand because of Beijing’s generous subsidies for local battery producers.

Parent LG Chem will retain an 81.8 per cent stake in the battery unit after the listing. Analysts expected short-term volatility in LGES shares given the limited share float.

The mega-deal has also sapped liquidity from other shares. The Kospi fell three per cent on Thursday afternoon and analysts forecast the new market giant to lure funds away from other large-cap Korean stocks.

“Many funds will try to have some exposure to the stock, given its huge market cap,” said Choi Joon-chul, head of VIP Research and Management. “It is a must-have stock for passive index funds, regardless of its valuation.”

Analysts said the strong showing from LGES was likely to increase appetite for big listings in the pipeline, including Hyundai Engineering, Kakao Entertainment and ecommerce players such as Market Kurly and SSG.com.

More than 20 companies were listed on South Korea’s main board last year, raising a record Won17tn, according to data from the Korea Exchange. The IPO market is expected to remain active despite flagging stock prices.