By Nam Hyun-woo
LG CNS, an IT system unit of LG Group, is seeking to debut on Korea’s main KOSPI market early next year and achieve a valuation of up to 8 trillion won ($5.9 billion) through the initial public offering (IPO).
According to the company, it submitted a preliminary review application to the Korea Exchange on Friday, initiating the process for its listing.
Given the stock market operator’s rules requiring the review results to be revealed within 45 business days after the application, and that the listing process should be completed within six months, LG CNS is expected to make its debut in the first half of next year .
The lead managers are KB Securities, Bank of America and Morgan Stanley, while a number of other brokerages will support the IPO as co-managers.
Brokerages expect LG CNS to be valued at between 5 trillion won and 8 trillion won when it goes public. According to 38 Communication, an over-the-counter and non-listed stock information provider, LG CNS’ market cap is assumed to be reaching 8.5 trillion won.
LG CNS has been seeking to go public since 2022, but took a careful stance in choosing the right timing due to the sluggish IPO market back then. Reportedly, the company initiated the IPO process this time, considering a promise with its second-largest shareholder Macquarie Private Equity that the company will go public before April 2025.
In the second quarter of this year, LG CNS posted 137.7 billion won in operating profit and 1.45 trillion won in sales, up 21 percent and 5.6 percent year-on-year respectively.
The stable growth in its sales and profits is also casting rosy outlook for LG CNS’ valuation.
From 2020 to 2023, LG CNS’ annual net profit grew average 26.4 percent. This was attributable to transactions with its affiliates, as many of LG Group companies incorporated cloud-based systems in recent years. Battery maker LG Energy Solution’s recent expansion of production facilities also boosted LG CNS’ sales.
LG CNS’ high valuation is also beneficial for Macquarie PE.
Through a special purpose company named Crystal Korea, Macquarie PE took over a 35 percent stake in LG CNS at 1 trillion won in 2020, under a term that LG CNS would go public within five years.
Even if LG CNS is valued at the minimum 5 trillion won, the private equity can expect a 750 billion won of boost in its stake in the company.
Despite the company’s growth projection, its reliance on transactions with its affiliates is viewed as a potential risk. According to the company’s filings, 64 percent of its sales were generated from transactions with affiliates in 2021. Though the company managed to lower this to 59.7 percent last year, the heavy reliance on affiliates shows that the performance of affiliates can sway the company’s sales.
“Through its IPO, LG CNS aims to enhance its core capabilities in digital transformation areas such as AI, cloud and smart factories, ultimately boosting shareholder value and positioning itself as a leading specialist,” an LG CNS official said.
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