South Korea’s fourth-largest conglomerate LG Group companies scrambled to sell bonds and shares to raise 4 trillion won ($2.8 billion) together early this year to benefit from lower borrowing costs ahead of the central bank’s anticipated rate cuts through this year.
According to the investment banking industry on Thursday, LG Group companies sold 2.96 trillion won worth of corporate bonds year to date.
LG companies’ total debt sales accounted for 24% of the country’s total corporate bond issuance worth 12.03 trillion won ($8.3 billion) in January, marking the biggest sales.
Its battery-making unit LG Energy Solution Ltd. recently raised 1.6 trillion won from its bond sale, followed by its digital broadcasting service-providing sibling LG HelloVision Co. and mobile carrier affiliate LG Uplus Corp. with 160 billion won and 600 billion won, respectively.
Korea’s top chemical player LG Chem Ltd. also sold its debts to raise 600 billion won.
BULLISH DEBT INVESTOR SENTIMENT
LG companies rushed to the bond market to raise funds early this year to benefit from lower borrowing costs at the beginning of this year amid growing expectations for the Bank of Korea’s rate cuts.
A credit spread for bonds with AA- rating narrowed to 59.2 basis points (bps) as of Feb. 12 from 69.0 bps Dec. 2, 2024, reflecting bullish credit investor sentiment.
LG Energy Solution initially planned to sell 800 billion won worth of bonds but its bond sale was oversubscribed to 3.7 trillion won during book building.
LG Chem, LG Uplus and LG HelloVision’s bond sales were also oversubscribed to 1.7 trillion won, 3.1 trillion won and 1.1 trillion won, respectively.
The beginning of a year is also considered a better time to sell debts before a swath of annual shareholders’ meetings scheduled later in March.
Fixed-income analysts forecast demand for corporate bonds will remain solid until the end of February.
Unlike other units, the information technology service-providing affiliate LG CNS Co. tapped the equity capital market to raise funds.
Last week, LG CNS went public on the country’s main stock bourse Kospi to raise 1.2 trillion won, the market’s largest initial public offering since its sibling LG Energy Solution’s IPO in 2022.
Of the total, 600 billion won worth of capital was raised from LG CNS’s new share sales.
FUNDS FOR NEW BUSINESS AND EXPANSION
LG Group companies have flocked to the debt and equity markets to raise capital early this year to make investments to bolster growth through expansion and new growth drivers.
LG Energy Solution plans to spend 1.1 trillion won worth of fund raised from the latest bond sale on acquiring other companies or stakes.
It plans to build separate electric vehicle battery joint ventures in North America with Hyundai Motor Group, Honda Motor Co. and Stellantis NV to cope with EV demand in the region.
LG CNS will use about 60 billion won of its IPO proceeds to acquire companies in smart engineering, digital transformation, and artificial intelligence and software sectors until next year, the company said.
IB sources expect more LG companies would join their siblings to raise funds in debt and equity capital markets.
But demand for their debts and equities could wane as the group’s mainstay petrochemical and lithium-ion battery businesses have entered a slowdown.
After raising massive funds in the capital market in recent years, LG Group also could take a blow from an uptick in borrowing costs in the future, analysts warned.
By Jeong-Cheol Bae
bjc@hankyung.com
Sookyung Seo edited this article.
