Toyota Tsusho buys 25% stake in LG Chem’s cathode plant in Gumi

Toyota Tsusho buys 25% stake in LG Chem’s cathode plant in Gumi

Toyota Tsusho, a subsidiary of Toyota Motor Corporation, has acquired a 25% stake in LG Chem’s cathode plant in Gumi, South Korea. This strategic move follows LG Chem’s recent efforts to raise funds through a stock-linked financing deal backed by its holding of shares in battery subsidiary LG Energy Solution Ltd. [1]

The deal, which is part of LG Chem’s ongoing corporate restructuring, aims to secure liquidity to support new growth initiatives. According to investment banking sources, LG Chem has been weighing various liquidity options, including a price return swap (PRS) transaction, to raise between 2 trillion won and 3 trillion won, which would be the country’s largest ever PRS deal. [1]

The acquisition by Toyota Tsusho is expected to provide LG Chem with much-needed financial stability amidst falling earnings due to a downturn in the chemicals industry. LG Chem reported a 64% decline in operating profit and a 11.5% drop in sales in 2024 compared to the previous year. The company’s petrochemicals division and LG Energy Solution’s operating profit have also been adversely affected by slowing EV demand in North America and Europe. [1]

The transaction underscores the urgency of restructuring and securing funds for new business models in the face of market challenges. Major conglomerates in Korea are turning to large-scale liquidity injections through various means, including PRS, to address their funding constraints. [1]

LG Chem’s Chief Financial Officer, Cha Dong-seok, views the stakeholding in LG Energy Solution as a “strategic resource” that can be leveraged to support new growth. The PRS deal, which involves multiple securities firms, is expected to have an annual interest rate between 4% and 4.5%, higher than LG Chem’s three-year bond yield of 3%. [1]

EcoPro Co., a secondary battery materials maker, is also planning to raise 700 billion won through a PRS contract, using its shareholding of affiliate EcoPro BM Co. Despite accounting debates over the recognition of PRS as debt, regulators have refrained from tightening rules due to concerns about funding constraints in Korea’s capital markets. [1]

The acquisition by Toyota Tsusho, along with LG Chem’s ongoing restructuring efforts, signals a shift towards strategic partnerships and financial innovation in the global chemicals and battery sectors. As the market continues to evolve, such deals are likely to become more prevalent as companies seek to navigate challenges and capitalize on new opportunities.

References:
[1] https://www.kedglobal.com/private-equity/newsView/ked202509080007