이 기사는 2021년 12월 10일 08:04 thebell 에 표출된 기사입니다.

South Korea’s LG Energy Solution (LGES) has avoided controversy over valuation by calculating its corporate value based on enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) and applying an up to 41.5% discount rate.

According to the company’s registration statement, LGES and its underwriters used an EV/EBITDA method to calculate its valuation.

The South Korean battery maker is valued at 112.2 trillion won ($95 billion) before the discount by applying an EV/EBITDA multiple of 51.4 times. Its EBITDA was 2.32 trillion won.

Various positive and negative factors that occurred ahead of the IPO were fully factored into the valuation. The company chose to use EBITDA instead of adjusted EBITDA, which excludes one-time factors, to adopt a more conservative approach when calculating its valuation.

This year, LGES’ one-time costs were larger than one-time gains. The company received 992.2 billion won in royalties from SK Innovation, which was recognized as an operating profit, while it had to spend total 1.14 trillion won on recall of its lithium-ion batteries used in energy storage systems (ESS) and batteries in General Motors’ Chevrolet Bolt electric vehicle.

LGES’ adjusted EBITDA of 2.52 trillion won would have pushed up its valuation by more than 10 trillion won to 122.34 trillion won, which appears too expensive.

Its discount rate of 41.5%-31.8% was also higher than average Kospi-listed companies. Most of the companies that carried out multi-trillion won IPO deals adopted a discount rate of about 40% to offer a more market-friendly IPO price and LGES seems to have followed suit.

The battery maker’s market capitalization is expected to reach 60.14 trillion won-70.2 trillion won after the listing, which is only a quarter of its rival Contemporary Amperex Technology (CATL)’s 270 trillion won.

Meanwhile, LGES has decided not to pursue the strategy of broadening the IPO price band by expanding the range of the discount rate. Its discount rate ranges from 41.5% to 31.8%, the narrowest among all companies that raised multi-trillion won via IPOs over the last five years. The companies that carried out mega deals this year broadened the range of discount rate to set their IPO price according to the market's pricing function.

It is likely that the Financial Supervisory Service (FSS) will look into the deal more closely than ever given that it will be the largest in the South Korean IPO market's history.

The key issue is that LGES recognized 1 trillion won cash compensation - which it will receive from SK Innovation this and next year – as an operating profit in the second quarter.

If LGES considered the money as compensation for damages and recognized it as non-operating profit or loss, the company would have recorded a cumulative operating loss for the three quarters through September.

In contrast, SK Innovation recognized the cash compensation it paid to the battery maker as a non-operating expense. (Reporting by Seok-chul Choi)