LG Energy Solution Refund Margin: "Let's Pay Off Debt First" vs "Reinvest"

Should I Use the Refund Deposit to Repay Debt First or Reinvest in Financial Products?

[Asia Economy Reporter Park Sun-mi] It is uncertain whether the funds withdrawn from bank credit loan accounts during the LG Energy Solution (LG EnSol) IPO subscription period will return on the refund date of the subscription deposit on the 21st. Considering the loan interest rate approaching 5% per annum, many people prefer to 'pay off debt first,' but since it is a difficult time to obtain new loans, many investors are trying to reinvest using the loans they have already taken out.

According to the financial sector on the 21st, LG EnSol will proceed with refunding 110.8154 trillion won out of the 114.1066 trillion won subscription deposit, excluding the portion of shares allocated to general investors. During the two days of the LG EnSol IPO subscription period on the 18th and 19th, the balance of credit loans at the five major banks surged by 6.9832 trillion won, indicating many people used bank loans for investment. The number of new overdraft accounts also reached 3,167 over the two days.

Although deposit and savings interest rates have recently increased by up to 0.40 percentage points, the loan interest rates are rising rapidly. Therefore, the financial sector expects that many investors will use the refunded LG EnSol subscription deposits to repay loans. Of course, from the banks' perspective, early repayment of loans by borrowers is a loss.

Banks are also selling high-risk, high-return financial products, but due to past incidents such as the Lime and Discovery Fund redemption suspensions and the recent Osstem Implant embezzlement case leading to a chain suspension of related fund sales, fund sales have been severely restrained. Fund sales have also become more difficult since the implementation of the Financial Consumer Protection Act (FCPA).

On the other hand, securities firms are actively trying to retain funds by promoting the next IPO investment schedule or linking events to reinvestment products using the refund money to prevent the large-scale investment funds flowing from bank accounts from leaving. Since the LG EnSol IPO subscription boom awakened dormant investor sentiment and stimulated a debt-financed and all-in investment atmosphere, they see this as an opportunity to attract customers for financial product investments.

An official from a commercial bank said, "There is a fierce game of nerves between banks and securities firms over the LG EnSol refund funds. From the bank's perspective, it is profitable if borrowers do not immediately repay the borrowed money but reinvest it, but since loan interest rates are rising so quickly, it is also possible that overdraft accounts, which can be repaid at any time, will be filled first."

It is also expected that cases of loan cancellations exploiting the FCPA will increase at banks. This is because, in the case of general credit loans that require a prepayment penalty for early repayment, consumers have the right to cancel the contract without penalty within a certain period, known as the 'right of withdrawal.' Another bank official said, "Many people have used the loan subscription withdrawal right whenever there was a major IPO subscription in the past. Some borrowers abuse the fact that if they withdraw within 14 days after taking out a loan, they do not have to pay the prepayment penalty, but there is currently no countermeasure to prevent this."