LG Chem (051910.KS) is expected to resume its sale of LG Energy Solution (373220.KS) shares in the second half of this year. Most of the LG Energy Solution shares that LG Chem transferred to domestic brokerages through a price return swap (PRS) contract last November have been resold (sold down) to the market, raising the likelihood that an additional deal will be launched, analysts said.
Investment banking (IB) industry observers said Thursday that LG Chem's timing for an additional sale of LG Energy Solution shares is approaching. LG Chem disposed of 5.75 million LG Energy Solution shares to domestic brokerages through a PRS contract on November 3 last year. As the brokerages have since gradually sold down the volume to the market, approximately 80% of the total has been transferred to other institutional investors. "LG Chem can only coordinate the timing of its sale once all of the LG Energy Solution shares held by the brokerages have been released to the market," an IB industry official said. "Full absorption is expected as we head into the second half."
From LG Chem's perspective, the LG Energy Solution shares disposed of through last year's PRS contract must be fully absorbed by the market before various options can be considered. If the brokerages continue to hold the volume, additional fundraising through them would be difficult. Brokerages typically have investment limits for each major business group. Given that five brokerages acquired shares worth 1.9981 trillion won at the time, taking on additional volume is reportedly burdensome.
If a block deal (off-hours bulk trade) were pursued instead, such concerns would be reduced because the counterparty would be a foreign brokerage. For this reason, multiple global IBs have been pitching block deals to LG Chem. However, industry officials say LG Chem is leaning toward additional fundraising through a PRS this time as well. The analysis is that since LG Energy Solution's share price has risen more than 20% from last November, choosing a block deal that would shock the share price would be difficult.
The fact that LG Chem reaped tangible benefits from last year's PRS transaction is another factor raising the likelihood of a PRS resumption. The price of the LG Energy Solution shares resold by the brokerages was higher than the reference price, with the resulting gains continuously flowing to LG Chem, according to sources. "Global IBs also proposed block deals last year, but pushing them through was difficult due to concerns over the pre-disclosure system," another IB industry official said. "By contrast, the PRS reduced share price pressure while securing capital gains, giving clear justification for resumption."
