A bird's-eye view of the battery manufacturing complex that LG Energy Solution is building in Arizona, USA. /Courtesy of LG Energy Solution

This article was published on Jan. 24, 2025, at 10:16 a.m. on the ChosunBiz MoneyMove site.

Domestic corporations in the secondary battery sector are grappling with funding methods due to a sluggish business environment caused by a temporary demand slowdown in electric vehicles and uncooperative U.S. policy trends. Some secondary battery companies facing bond maturity deadlines have proceeded with refinancing through bank loans instead of public bond issuance, while others plan to observe the demand forecast results of LG Energy Solution, which is set to issue corporate bonds, to gauge investor sentiment in the bond market. This makes LG Energy Solution's corporate bond issuance performance critical.

According to investment banking (IB) industry sources on the 24th, LG Energy Solution will conduct a demand forecast for institutional investors ahead of issuing corporate bonds worth between 800 billion won and 1 trillion won on March 6. Depending on the results of the demand forecast, LG Energy Solution has kept open the possibility of increasing the issuance amount to a maximum of 2 trillion won. The tranches will vary from 2-year, 3-year, 5-year, 7-year, to 10-year bonds. The lead managers for this issuance include DAISHIN SECURITIES, Shinhan Investment Corp., Korea Investment & Securities, KB Securities, and NH Investment & Securities.

LG Energy Solution issued 1.6 trillion won in corporate bonds last year, marking the largest single issuance to date. At that time, 5.1 trillion won was attracted in the demand forecast. However, the situation has changed as the prolonged electric vehicle demand slowdown has led to poor performance. LG Energy Solution recorded a quarterly loss in the fourth quarter, the first time since the third quarter of 2021.

Additionally, due to the unfavorable policy stance of the Trump administration, investor sentiment toward secondary battery companies has diminished. On the 21st, President Trump officially canceled the electric vehicle mandate policy. He withdrew the electric vehicle sales targets set by former President Joe Biden and reduced environmental regulations, taking the first step toward repealing the electric vehicle mandate. Furthermore, he rescinded the executive order that aimed for 50% of all new cars sold in the U.S. to be electric vehicles by 2030.

Park Jong-il, a senior researcher at Nice Credit Rating, noted, "The slowdown in the global electric vehicle market growth, excluding China, continues, leading secondary battery corporations to experience poor performance due to decreased operating rates. Secondary battery companies are compensating for operating profitability with a tax credit for advanced manufacturing production (AMPC) that has increased by more than 70% compared to the same period last year. However, without the AMPC, they are recording operating losses." The AMPC benefits are included in the Inflation Reduction Act (IRA), which President Trump is working to repeal.

SK On also conducted a credit rating evaluation recently in anticipation of issuing corporate bonds next month. It received an A+ (stable) rating. However, SK On plans to decide on whether to issue corporate bonds after observing the results of LG Energy Solution’s demand forecast. Since its establishment in October 2021, SK On has not recorded a profit, making favorable business conditions crucial. By the end of the third quarter of last year, SK On posted a cumulative operating loss of 767.6 billion won, an increase from the loss of 563.2 billion won in the same period the previous year.

Ecopro needs funding to refinance corporate bonds worth 130 billion won maturing in the first half of this year. It is reported that the refinancing for the 50 billion won corporate bond maturing on the 25th will be done through a loan instead of issuing new bonds. Samsung SDI also financed its operations through loan agreements rather than issuing corporate bonds. Samsung SDI’s U.S. subsidiary, Starplus Energy, secured a loan of $7.54075 billion (approximately 10.8 trillion won) using 51% of its equity as collateral.

An industry insider stated, "While capital contributions from joint ventures and paid-in capital increase, as well as issuing new hybrid capital securities, help alleviate the increase in borrowing funds, additional financing is necessary to refinance already issued corporate bonds. However, it is somewhat positive that institutional demand is concentrated on public bond offerings due to the beginning-of-the-year effect."

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