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(Bloomberg) — LG Energy Solution Ltd.’s stock slipped to a fresh record low, as a plan by its parent LG Chem Ltd. to refinance exchangeable bonds spurred dilution concerns over the EV battery maker.
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Shares of LG Energy, a supplier to Tesla Inc. and other automakers, fell as much as 4.7% Friday to 292,500 won, below the price of their initial public offering in 2022. The drop followed LG Chem’s announcement that it will sell $1 billion in new bonds that can be exchanged for LG Energy stock.
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The bonds mature in 2028, according to the chemical maker’s filing. They have an initial exchange price of 337,700 won apiece, reflecting a premium of 10% over LG Energy Solution’s closing price on Thursday, according to terms of the deal seen by Bloomberg News.
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This is the latest big exchangeable-bond issuance in Asia this year. Sinopec, China’s largest crude-oil processor, this week sought nearly $1 billion through bonds that can be swapped for shares in a Hong Kong-listed subsidiary. Chinese technology firm Baidu Inc. raised $2 billion in the sale of bonds exchangeable into the Hong Kong shares of online-travel agency Trip.com Group Ltd.
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Unlike convertible bonds that can be exchanged for shares in the issuer, exchangeables involve the stock of a different company. While both typically offer lower interest costs than regular debt, they similarly risk diluting existing shareholders of the subject stock if the conversion option is exercised.
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LG Chem’s new instrument carries a coupon of 1.75% a year, payable semiannually, the terms show. Along with the offering, LG Chem will repurchase existing bonds exchangeable for LG Energy shares that were due 2028, according to the terms. Those bonds have an outstanding amount of $1 billion.
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The earlier bonds were issued in 2023 with an exchange price of 687,500 won, making conversion much less likely given current share price levels. LG Energy shares have dropped more than 40% in the past two years amid sluggish EV demand.
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Bank of America Corp., HSBC Holdings Plc and Morgan Stanley are arranging the LG Chem deal.
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—With assistance from Shinhye Kang, Heesu Lee and Youkyung Lee.
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