Buoyed by renewed market interest, shares of chemical manufacturer soar over 13%
London-based hedge fund Palliser Capital publicly demanded that LG Chem resolve its market discount, revealing it holds a stake of over 1 percent in the South Korean chemical materials manufacturer.
Palliser disclosed its ownership in the company during a presentation held at a hedge fund activism conference in New York on Tuesday, marking the first time the fund has gone public with its engagement with LG Chem. It further defined itself as a "long-term" investor of LG Chem and one of its top 10 investors.
LG Chem’s biggest shareholder is its parent company, LG Corp., with a 34.98 percent stake. The National Pension Service is the second largest stakeholder with an 8.64 percent ownership.
The hedge fund highlighted that LG Chem’s market capitalization of 28 trillion won ($20 billion) fails to reflect the intrinsic value of its ownership in LG Energy Solution. The leading battery maker currently has a market cap of 106 trillion won, making it the third most valuable company on the benchmark Kospi.
With a 79 percent stake in LG Energy Solution, LG Chem’s implied equity value stands at around 84 trillion won, roughly three times its own market valuation.
“LG Chem trades at an extreme 74 percent discount to net asset value, the widest among all Korean conglomerates,” Palliser highlighted, adding the discount creates a discrepancy of 69 trillion won.
It further explained that LG Chem is valued like a struggling petrochemical business despite its best-in-class battery businesses forming the vast majority of its assets.
Palliser urged the company to enhance board composition, implement a return-oriented capital allocation framework, and execute buyback-in-kind utilizing its stake in LG Energy Solution.
To further pressure the conglomerate affiliate, Palliser stressed LG Chem should lead the charge for Korea’s capital market reform with the move to boost valuation, referring to the “Kospi 5,000” vision presented by the Lee Jae Myung administration.
“We see a seismic opportunity for LG Chem to adopt bold initiatives that embody the ‘LG Way’ philosophy and take on the responsibility, as a national leader, to support South Korea’s corporate and economic reforms and, in particular, President Lee’s ‘Kospi 5,000’ vision," James Smith, founder and chief investment officer of Palliser, said.
“Our team appreciates the extensive engagement with the Company and its C-suite management team, and we look forward to continuing an open dialogue as we work towards our shared goal of ensuring LG Chem reaches its full potential.”
Palliser is recognized in Korea for having challenged local conglomerate affiliates such as SK Square and Samsung C&T to take actions aimed at enhancing corporate value and returning profits to shareholders.
Following the activist move, LG Chem’s stock closed at 391,000 won, surging over 13 percent from the previous day.
This marks the first time the stock has climbed above 350,000 won in a year. With the petrochemical industry being widely regarded as at or near a cyclical bottom, the stock had remained weak, falling as low as 181,500 won on May 26.
silverstar@heraldcorp.com
