LS Defends Essex Solutions IPO Plan, Projects Threefold Value Increase by 2030

[Korea Financial Times, Shin Haeju] "This is absolutely not for succession or circumventing regulations."

LS Corporation has officially addressed controversies surrounding duplicate listings as it pursues an initial public offering (IPO) for its great-grandchild subsidiary Essex Solutions (ES). LS held a briefing at its Seoul Yongsan headquarters on November 20 to explain the necessity of the listing and future plans.

Lee Tae-ho, Chief Financial Officer (CFO) and Managing Director of LS Corporation, cited "large-scale facility investment in the specialty wire business" as the core reason for the ES listing. He explained, "ES business is divided into general wire and specialty wire, and specialty wire, which requires high performance, needs high technical capabilities and has high margins, but requires additional facility investment, making it a capital-intensive field."
Established in the United States in 1930, ES has maintained its position as the global number one in the wire market for the past 95 years. It also holds a high market share in the specialty wire market for electric vehicle drive motors. LS acquired ES through a public tender offer in 2008, incorporating it as a 100% subsidiary. ES filed for preliminary listing review with the Korea Exchange (KOSPI) in early this month. According to EY-Parthenon, the global wire market size is projected to nearly double from USD 33.5 billion in 2024 to USD 62.3 billion in 2030.

Managing Director Lee stated, "To seize this opportunity, we need to invest approximately KRW 400 billion over the next 3-4 years to secure production capacity advantage."

Currently, LS Group's consolidated debt-to-equity ratio stands at 198%. Managing Director Lee said, "Additional borrowing would raise the debt-to-equity ratio to 206% and generate approximately KRW 30 billion in annual interest expenses, burdening financial health and shareholder value." He added that ES also faces significant interest cost burdens due to its high proportion of dollar-denominated funding. He explained that other funding methods such as convertible bonds (CB) and bonds with warrants (BW) were also reviewed but excluded due to potential equity dilution after maturity.

However, some shareholders attending the briefing expressed concerns that the ES listing could be the start of consecutive listings of unlisted affiliates. They argued that the possibility of additional listings of major affiliates such as LS Cable & System and LS MnM could damage LS Corporation shareholder value.

Lee Sang-mok, CEO of minority shareholder platform ACT, pointed out that subsidiary listings, like the LG Chem and LG Energy Solution case, could lead to parent company stock price declines.

Another shareholder who identified himself as working at a stock investment research institute also pointed out, "We're not concerned about the ES listing itself, but ultimately, isn't this about separating affiliates to create positions for the owner's children?" He said, "The ES listing is just the beginning, and shareholder value will be seriously sacrificed by following the footsteps of Kakao or SK," and asked, "Can you promise not to list the remaining unlisted affiliates excluding ES?"

Another shareholder warned, "Chairman Koo Ja-eun experienced a stock price plunge with remarks like 'don't buy the stock if you don't like it' in response to opposition to duplicate listings," and "If shareholder value declines due to subsidiary listings, it would violate the core of the Commercial Act amendment regarding the board's duty of loyalty to shareholders and could constitute breach of trust by management." He added, "Treasury stock cancellation or dividend expansion are basic obligations the company should fulfill and cannot be compensation for shareholder value damage."

Managing Director Lee drew a line, stating, "This is absolutely not for succession or other circumventing methods." Regarding listing plans for LS Cable & System and LS MnM, he emphasized, "We currently have no specific plans and will decide in a direction that helps shareholders, and if it doesn't help, we won't execute it."

He responded, "Some shareholders say remaining unlisted is helpful for shareholder value, while others say shares should be liquidated through listing and those funds distributed as dividends," and "Definitively answering right now that we absolutely won't do it could actually violate Commercial Act obligations."

Park Jin-ho, Managing Director of LS Corporation's Strategic Finance Division, said, "LS Corporation has 45 largest shareholders, of which 35 are minority shareholders," and "It doesn't make sense to proceed without considering minority shareholder value." He explained, "When we considered what would be the optimal way to enhance minority shareholder value, we concluded that ES IPO was the closest option."

Managing Director Park stated, "ES is not a physical split, the so-called 'break-up listing,' but an 'acquisition listing,' and when expecting post-listing market capitalization of approximately KRW 2.5 trillion, even considering equity dilution, the increase in shareholder equity value is expected to be very large, making the risk of shareholder value decline minimal."

Regarding the 2030 ES enterprise value outlook, Choi Chang-hee, CEO of Essex Solutions, said, "We made judgments based on three keywords: super cycle response, supply chain reorganization, and securing investment timing," and "Enterprise value could rise approximately threefold compared to the present by 2030."

CEO Choi added, "The biggest reason Korean companies struggle in the United States is that business stabilization and factory construction take a long time, but we are already prepared," and "We have a vertical integration system for raw materials, specialty chemicals, and EVs, and particularly, we are in a desperate situation where we must continue hybrid investments."

Meanwhile, ES's largest shareholder is Superior Essex, which holds a 78.9% stake. The Mirae Asset-KCGI consortium "EV Evelyn" is the second-largest shareholder with 21.1%. The governance structure flows as "LS Corporation → LS I&D → Superior Essex → ES."

Shin Haeju (hjs0509@fntimes.com)