South Korean conglomerate LG Chem said on Thursday it will spin off its battery business, allowing the unit to concentrate on its core competency and raise targeted funds.
LG Chem plans to gain approval for the move from an extraordinary stockholders’ meeting on October 30 and officially launch the new company, tentatively named “LG Energy Solution” on December 1.
The unit makes batteries for cars, as well as for smartphones, laptops and energy storage systems. Batteries for electric vehicles are considered a major future growth industry, boosted by stronger emissions regulations worldwide and ongoing R&D by disruptor Tesla and mainstream auto makers. The battery represents some 40% of the value of an EV.
In gigawatt terms, the sector will be comfortably led by South Korea until the end of 2025, followed by Japan, with China in a distant third place, according to data from BloombergNEF.
And it’s a rising sector. According to Bloomberg, the global market for the sector LG’s battery unit is competing in – EVs, consumer electronics and storage devices – will be worth $116 billion by 2030, up from a current market value of $28 billion.
According to LG Chem, the sector is even richer than Bloomberg’s estimates. Its battery unit has “currently procured more than 150 trillion won ($128 billion) in orders on hand in the EV battery business,” the company said.
However, LG Chem did not provide any information about the customers or timeline of the orders.
The sector demands heavy R&D spending and capital investment. LG Chem is investing some 3 trillion won annually in facilities and says the need to procure large investment funds in a timely fashion has also increased.
The spin off should enable fund-raising. “Through this division, it will be possible to attract large investments, while easing financial burdens by establishing an independent financial structure,” LG Chem said.
LG Chem expects the new entity to generate revenues of 30 trillion won in 2024. This year, it anticipates earnings of around 13 trillion won from the unit.
However, the spin off could be a tough sell for the company when it puts the proposition to shareholders next month. LG Chem shares fell over 5% today on the news.
“It is good for the battery industry and also for LG Chem, but from the perspective of shareholders it may not so good,” Heo Jye-hwan, a sector analyst at Yujin Securities told Asia Times. “Now they are taking the battery unit out of LG, it will be a loss for shareholders.”
LG Chem said it would hold a 100% stake in the new entity. Heo said he anticipated an IPO in the future, but had no idea of timing.