South Korea’s LG Chem eyes capex boost for sustainability investments

SINGAPORE (ICIS)–South Korean producer LG Chem is looking at boosting its capital expenditure funds for sustainability investments via a possible sale of a small stake in its battery subsidiary LG Energy Solutions.

According to media reports citing unnamed banking sources on 16 June, the chemical producer was close to selling about Korean won (W) 2tr ($1.5bn) worth of LG Energy Solution shares via a block deal.

LG Chem, which is listed on the Korea Exchange, has not officially confirmed the deal. The company did not immediately respond to ICIS’ e-mailed queries on the stake sale.

“Currently, LG Chem has an 81.84% stake in LG Energy Solution which has a market cap[italization] of W131tr. This W2tr won worth of sales could be worth about 1.5% stake in LG Energy Solution,” said Douglas Kim, an independent equity researcher, in a recent note for investment research and analysis firm Smartkarma.

“LG Chem is expected to use the proceeds from this sale on its own capital expenditure and facility investments,” Kim said.

In a strategy update in mid-May, LG Chem said that it is counting on sales from three sectors to power its future growth – battery materials, sustainability and new pharmaceuticals, as it plans to shift away from a petrochemical-centric portfolio.

In 2022, LG Chem’s overall petrochemicals production capacity stood at 25.2m tonnes, according to its website.

The company is South Korea’s largest chemical producer in terms of revenues, which stood at W23.4tr last year.

LG Chem has moved into the production of high-nickel cathodes, used mostly for producing electric vehicles as well as mechanical recycling, including commercialising the world’s first white post-consumer recycled acrylonitrile butadiene styrene (ABS).

In January 2023, LG Chem acquired US oncology-focused biopharmaceutical firm Aveo in a deal worth around $570m as part of its push to expand its life sciences business.

Sales from the three new areas are expected to make up 57% of the company’s overall revenues in 2030, up from around 21% last year.

The company also targets to boost sales from recycled, bio/biodegradable and renewable energy materials to W8tr by 2030, more than a fourfold increase from W1.9tr in 2022.

On 15 May, LG Chem had said that based on its mechanical and chemical recycling technology capabilities, the company is securing a diverse product portfolio to target the recycled plastics market, which is expected to reach W100tr by 2028.

In March, LG Chem started construction of its first pyrolysis oil plant in Dangjin, South Korea, which will be the nation’s first plant using supercritical water technology and will have 20,000 tonnes/year of capacity.

It is also looking at completing building a demonstration plant for polycarbonate (PC) chemical recycling in 2026 based on its proprietary technology.

“LG Chem has ambitious sales targets,” Smartkarma’s Kim said, noting that LG Chem generated non-consolidated sales of W23.4tr last year and plans to grow its revenues to nearly W60tr by 2030.

The target represents a compound annual sales growth rate of 12.5% from 2022 to 2030.

“This would require nearly W4tr won in annual capex and R&D from 2023 to 2030. Given that LG Chem had non-consolidated operating cash flow of W1.4tr in 2022 and W4tr in 2021, the company is likely to need to sell some of its stake in LG Energy Solution to meet the annual capex and R&D requirements,” he added.

In 2022, the company’s actual capex stood at W1.73tr, down from W1.99tr in the previous year.

Focus article by Nurluqman Suratman

($1 = W1,293)

Thumbnail image: LG Chem is working to develop recycled plastic made from marine waste. (Source: LG Chem)