LG Chem’s Strategic Water Business Sale: A Necessary Move Amid Shifting Tides?

LG Chem, one of South Korea’s industrial giants, has taken a decisive step to reshape its portfolio by naming Glenwood Private Equity (Glenwood PE) as the preferred bidder for its water solutions division—a carve-out valued at approximately 1 trillion won ($692 million). The move, which triggered a 3% decline in LG Chem’s share price, underscores a broader struggle to navigate financial headwinds in its core petrochemical business while positioning itself for growth in higher-margin sectors.

The Rationale Behind the Sale

The water division, acquired in 2014 through the purchase of U.S.-based NanoH2O, has grown into a global leader, holding 21% of the reverse osmosis (RO) membrane market and trailing only Japan’s Toray Industries. It generated 250 billion won ($173 million) in revenue and 65 billion won ($45 million) in EBITDA in its latest fiscal year, supporting a valuation of roughly 20x EBITDA. This premium multiple reflects the unit’s strong profitability and its role as a critical player in a sector expected to grow as water scarcity and industrial demand for purification solutions rise.

LG Chem’s decision to offload the division is part of a strategic pivot to focus on high-margin segments like batteries and sustainable materials. The company faces mounting pressures in its core petrochemical business, including over-supply from Chinese competitors, weak demand for EV batteries, and geopolitical risks such as U.S. trade tariffs. The proceeds from the sale—potentially redirected toward lithium-ion battery materials or eco-friendly chemicals—could bolster liquidity and support R&D for next-gen technologies.

Market Reaction and Concerns

Despite the division’s strong fundamentals, investors appear skeptical. LG Chem’s shares dropped 3% following the Glenwood deal announcement, part of a broader 4% decline in Q1 2025 amid a S&P Global Ratings downgrade to BBB (the lowest investment-grade rating). The downgrade cited elevated debt levels and persistent challenges in the petrochemical sector, which dragged LG Chem’s net income to -₩691 billion ($480 million) in 2024—a stark contrast to its ₩1.3 trillion ($900 million) profit in 2023.

Analysts note that the sale’s timing coincides with LG Energy Solution’s (LG Chem’s battery subsidiary) fragile recovery, which reported a Q1 2025 net profit of ₩226.6 billion ($158 million) after years of losses. However, this profit came amid aggressive cost-cutting and reduced production targets, raising questions about the sustainability of growth in its core battery business.

Glenwood’s Role and Future Outlook

Glenwood PE, a specialist in carve-outs, plans to invest ₩200 billion ($138 million) post-acquisition to expand the water division’s manufacturing capacity and solidify its global standing. This aligns with Glenwood’s track record of revitalizing non-core assets, such as LG’s former Techcross and diagnostics businesses, which it has stabilized through operational improvements and capital injections.

The transaction also reflects a broader trend in South Korean conglomerates trimming non-core divisions to focus on high-growth areas. For LG Chem, this could mean further divestitures, such as its battery separator business—a move that could free up capital but also signal a retrenchment amid sector-specific risks.

Key Risks and Catalysts

• Credit Downgrade Impact: The BBB rating increases borrowing costs and could deter institutional investors seeking safer bets. LG Chem’s ability to reduce debt and stabilize cash flows will be critical.
• EV Battery Sector Uncertainty: Weak EV demand in China and Europe, coupled with U.S. trade tensions, may prolong challenges in this core segment.
• Water Division’s Post-Sale Growth: Glenwood’s investment could elevate the business to a top-tier global player, but execution risks remain.

Conclusion: A Necessary Trade-Off?

LG Chem’s sale of its water division is a pragmatic step to address liquidity pressures and refocus on higher-margin sectors. The 20x EBITDA valuation reflects the division’s strong fundamentals, and Glenwood’s strategic plans offer hope for future upside. However, the stock’s decline highlights lingering investor concerns over debt, weak petrochemical demand, and execution risks in its core businesses.

While the move is rational, the road ahead hinges on LG Chem’s ability to convert battery and sustainable materials initiatives into sustained profitability, stabilize credit metrics, and navigate geopolitical headwinds. For now, the water sale buys time—but without a turnaround in its core sectors, the stock’s valuation may remain under pressure.

In a sector where RO membrane demand is projected to grow at 7% annually through 2030, LG Chem’s exit allows Glenwood to capitalize on that growth while freeing LG Chem to focus on its own metamorphosis. Whether this strategic shift translates into investor confidence will be revealed in the quarters ahead.