92% of Institutional Investors Favor LG Chem Share Buyback, JP Morgan Survey Finds

(Seoul=Yonhap Infomax) Hak Seong Kim – A recent JP Morgan survey revealed that 92% of global institutional investors prefer a share buyback as the most effective way for LG Chem Ltd., South Korea's leading chemical company, to enhance shareholder value. Notably, a majority support using the company’s stake in subsidiary LG Energy Solution Ltd. as the funding source for such a buyback.

According to the survey, 97% of respondents believe that a share buyback funded by LG Energy Solution shares would have a positive impact on LG Chem’s stock price.

JP Morgan, a major US investment bank, included the results in a recent report after surveying approximately 37 LG Chem investors worldwide. When asked about their preferred value-up strategy for LG Chem, 92% cited a share buyback. Of these, 76% specifically favored using LG Energy Solution shares as payment for the buyback.

Breaking down the responses, 38% supported the proposal by UK-based activist fund Palliser Capital to buy back shares using 10% of LG Energy Solution’s equity, while another 38% preferred a combination of such a buyback and dividend payments. Only 8% favored cash dividends alone.

This indicates that most investors view a share buyback or cancellation using LG Energy Solution shares as more effective than a simple cash dividend. LG Chem last conducted a share buyback two decades ago.

Palliser Capital, which has disclosed itself as a top-10 shareholder of LG Chem, previously argued that LG Chem’s 82% stake in LG Energy Solution results in a 74% discount to its net asset value (NAV). The fund publicly proposed that LG Chem use 10% of its LG Energy Solution shares as payment for a share buyback.

In the same JP Morgan survey, 97% of respondents said that if LG Chem announced a buyback in line with Palliser Capital’s proposal, the company’s share price would rise—effectively a unanimous expectation of a positive market reaction.

Additionally, 51% of respondents believe that LG Chem’s appropriate NAV discount should be below 50%.

However, opinions were divided on the potential impact of the buyback on LG Energy Solution’s share price: 31% were positive, 36% neutral, and 34% negative. If LG Chem uses its LG Energy Solution shares to fund the buyback, the number of LG Energy Solution shares in circulation would increase.

Despite growing expectations among institutional investors for more proactive shareholder value measures from LG Chem, few market participants anticipate the company will announce a significant new policy in the near term.

LG Chem has so far refrained from commenting on a potential share buyback, maintaining a cautious stance.

During an earnings call on October 31, Chief Financial Officer Cha Dong-seok said the company is considering using part of the 2 trillion won ($1.5 billion) proceeds from the recent sale of a 2.5% stake in LG Energy Solution as a source for dividends.

Regarding the remaining 79% stake in LG Energy Solution, Cha stated, “It is an asset that can be utilized at any time to enhance future competitiveness and shareholder value,” but added that no specific plans have been decided.

hskim@yna.co.kr

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