LG Energy Solution, Reasons Behind Foreign Ownership Falling Below 3%

[Asia Economy Reporter Park So-yeon] The foreign ownership ratio of LG Energy Solution (LG EnSol) relative to its market capitalization has fallen below 3%.

According to the Korea Exchange on the 19th, as of the closing price on the 18th, LG EnSol's foreign ownership ratio stood at 2.99%. Excluding the 6-month lock-up shares (2,368,000 shares) since listing, it is only 1.97%.

At the time of the public offering in January, foreign securities firms underwrote about 9.44% (22.1 million shares) of the listed shares (234 million shares). Among these, the lock-up rate for overseas institutions was 27.1%, meaning most of the shares whose lock-up period has expired have been sold.

In the case of LG EnSol, foreign sell-offs began immediately after listing. During the first three trading days after listing, foreign investors sold stocks worth 1.8049 trillion KRW (3.54 million shares) through foreign securities firms such as Credit Suisse (CS) and JP Morgan.

The foreign selling pressure caused LG EnSol's stock price to plummet. Although the stock price was set at 597,000 KRW on the first day of listing, which is 99% higher than the public offering price (300,000 KRW), it dropped to 450,000 KRW due to the selling pressure that poured in immediately after the market opened.

The closing price on the first day of listing fell 15.41% compared to the opening price, and on the second day, it dropped 10.89% compared to the previous day. Currently, three months after listing, the stock price stands at 405,000 KRW as of 9:40 a.m. on the 19th, which is a 32% decrease from the opening price.

LG EnSol, ranked second in KOSPI market capitalization, has a significantly lower foreign ownership ratio compared to companies in the top 10.

Looking only at foreign ownership ratios: Samsung Electronics 50.77%, SK Hynix 49.72%, Samsung Biologics 10.34%, Naver 53.73%, Samsung SDI 42.23%, Hyundai Motor 26.87%, Kakao 28.53%, LG Chem 48.12%.

The reason for the large gap in LG EnSol's foreign ownership ratio compared to other companies can be attributed to the high stake of its parent company and largest shareholder, LG Chem, which holds 81.84%.

A more fundamental reason is interpreted as an excessive valuation. The estimated PER (price-to-earnings ratio) of Samsung SDI, a representative competitor, is 24.14 times. In contrast, LG EnSol's estimated PER reaches 104.72 times. Comparing the first-quarter earnings of the two companies, Samsung SDI (322.3 billion KRW) outperformed LG EnSol (258.9 billion KRW).

Expanding globally, LG EnSol is behind Chinese competitor CATL in electric vehicle battery market share. According to energy research firm SNE Research, last year's cumulative global electric vehicle battery usage showed LG EnSol's market share at 20.3%, trailing first-place CATL (32.6%) by 12.3 percentage points.

Additionally, the prolonged military conflict between Russia and Ukraine recently has acted as a negative factor causing foreigners to reassess the battery industry overall. This is because key battery materials such as nickel and aluminum heavily depend on imports from Russia.

An investment banking (IB) industry official said, "Although it is true that foreign investors have been net sellers of domestic stocks for four consecutive months this year, reducing their share in the domestic stock market, the notably low foreign ownership ratio of LG EnSol may indicate its relatively low investment attractiveness."