LG Energy Solution's IPO eating up stock market liquidity like 'black hole'

LG Energy Solution's headquarters located on Yeouido / Courtesy of LG Energy Solution

By Anna J. Park

Ahead of LG Energy Solution's massive IPO slated later this month, the huge size of the global battery manufacturer is drawing towards it liquidity from around the local stock market, as institutional investors are readjusting their investment portfolios to include the soon-to-be listed company.

While the battery company is set to receive retail investors' subscriptions for the IPO for two days this Tuesday and Wednesday, the firm's institutional investor subscriptions have resulted in an all-time record high ― the competition rate of 2,023:1 ― in the history of KOSPI-listed companies, with orders standing at a whopping 15.2 quadrillion won ($12 trillion) worth of stocks.

Although the firm's market cap size based on the subscription price is around 70 trillion won, its market cap is expected to reach some 100 trillion won, given the success of the IPO subscription rate.

The company is also expected to be included in various major global indices, such as the FTSE, MSCI and KOSPI 200, which will also draw a massive influx of passive fund money. This passive funds influx is expected to add fuel to the already-overheated demand for the stock, acting as yet more pressure towards the stock's upward movement in a short-term period.

In response to such fervor, major local institutional investors have been preparing their cash bullets to purchase the LGES stock by selling local stocks. Since the end of last year, institutional investors net-sold over nine trillion won worth of local stocks ― 7.2 trillion won on the KOSPI market and 2.1 trillion won on the tech-heavy KOSDAQ market during the first two weeks of this month, leading the downward trend shown in the local stock markets early this year.

During the period, the KOSPI index fell by 3.26 percent and the KOSDAQ index declined by 5.46 percent, which canceled out a "January Effect" ― a general stock market trend that shows a bullish run in the first month of a year.

Institutional investors' most net-sold stock item is Samsung Electronics, the country's largest market cap company, followed by SK hynix, Naver, Kakao, Celltrion, Krafton and LG Chem, most of which are representative blue-chip companies.

Once completing the public offering, LGES is expected to be one of the top three market cap companies on the KOSPI.

"In the short term, LGES is expected to function as a 'black hole,' which puts constraints on other large market cap companies included in the KOSPI 200 index," Kim Yong-koo, an analyst at Samsung Securities, said, explaining that institutional investors' recent selling spree through their program trading is mostly aimed at securing LGES stocks.

Concerns over rising interest rates in major countries are another factor along with the burden of the LGES IPO, putting downward pressure on the local stock market and limiting stock prices.

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