SEOUL, Mar. 15 (Korea Bizwire) — LG Chem Ltd.’s aggressive investment plan for its EV battery and petrochemicals business has drawn mixed responses from market watchers.
Some analysts are concerned the investment push may come as a financial albatross to South Korea’s top chemicals and EV battery maker, while others are upbeat it will likely provide new cash cows for the firm.
LG Chem has announced plans to invest 6 trillion won (US$5.29 billion) this year to expand its production facilities at home and abroad — well above the 1 trillion won to 2.5 trillion won it invested annually between 2011 and 2017.
In a blow to LG Chem, global credit appraiser Standard & Poor’s (S&P) downgraded the firm’s credit rating outlook from stable to negative while retaining its A- rating.
S&P said LG Chem’s room to maintain its current credit rating for the next 24 months has weakened due to its increased facility investment and leverage.
Estimating LG Chem’s annual operating cash flow at 3.5 trillion won to 4 trillion won in 2019 and 2020, the rating agency voiced concern it would be insufficient by a considerable amount to finance facility investment and dividend payments.
S&P said LG Chem’s adjusted debt is expected to soar to around 6 trillion won at the end of this year, compared with 3.6 trillion won in 2018 and 1.1 trillion won two years ago.
S&P further said LG Chem could face unfavorable conditions in the EV battery and petrochemicals sectors down the road.
Volatility of the petrochemicals industry is likely to limit the company’s overall performance improvement, and the EV battery market is confronted with high uncertainty over profitability due to stiffer competition and a supply glut, S&P added.
Domestic analysts, however, are sanguine about LG Chem’s investment in the EV battery business.
“LG Chem is supplying batteries to major global automakers such as BMW, Volkswagen, General Motors, Hyundai and Kia,” said Ham Hyeong-do of IBK Investment & Securities Co.
“The company has been scaling up production capacity to meet existing orders and secure new orders. Its aggressive investment is bearing fruit.”
LG Chem broke into the EV battery business in 2009. It currently operates EV battery plants in China, the United States, Poland and South Korea.
The company said earlier that it aims to raise its EV battery production capacity to 110 gigawatt hours (GWh) by 2020 from the current 34 GWh.
LG Chem’s investment push comes after Koo Kwang-mo took the helm at LG Group, South Korea’s fourth-largest family-controlled conglomerate, in June last year, a month after his father’s death.
Industry sources said LG Chem appears to be trying to find future growth engines under the new leadership of the 41-year-old Koo, who is focused on scouting for outside talent and investment.
Meanwhile, LG Chem’s board of directors officially appointed Shin Hak-cheol as its vice chairman and CEO. Before joining LG Chem, Shin served as vice chair and executive vice president at 3M Company.