LG Energy Solution Subscription Draws Even Foreign Retail Investors... Watchful for Passive Fund Inflows

Record-Breaking Subscription Funds for LG Energy Solution
Capital Outflow for Subscription Even from Seohak Gaemi
Potential Inflow Due to Index Inclusion

[Asia Economy Reporters Junho Hwang and Byungseon Gong] LG Energy Solution (LG EnSol) has recorded a 'record-breaking' success in its initial public offering (IPO), attracting even foreign individual investors known as "Seohak Gaemi." Attention is now focused on the inflow of passive funds, which could influence the future stock price direction.

Seohak Gaemi Also Withdrew Funds

According to the financial investment industry on the 20th, LG EnSol's general subscription over two days from the 18th to 19th attracted subscription deposits totaling 114.1066 trillion KRW. The number of subscription applications reached 4,424,470, setting a record for the highest number since the ban on duplicate subscriptions.

It appears that even Seohak Gaemi flocked to LG EnSol. According to the Korea Securities Depository's securities information portal, SEIBRO, as of the 18th, the amount of U.S. stocks held by Seohak Gaemi was $63.5 billion (approximately 75.6285 trillion KRW). The amount had been rising continuously, reaching about $70.2 billion on the 3rd, but about 8 trillion KRW was withdrawn from the U.S. stock market within two weeks. This is analyzed as a shift toward LG EnSol.

Hwang Sewoon, a research fellow at the Korea Capital Market Institute, explained, "Seohak Gaemi are ultimately individual investors who tend to react sensitively to specific issues," adding, "The recent weakness in both domestic and international stock markets has increased the desire to hold cash, which likely acted as a complex factor."

What About Future Trends?

The stock price trend on LG EnSol's listing day, the 27th, is expected to be determined near the upper end of the public offering price. Lee Kyungsoo, a researcher at Hana Financial Investment, said, "Large IPO stocks such as SK Bioscience, SK IE Technology, KakaoBank, Krafton, and KakaoPay last year saw their closing prices on the listing day rise by an average of 78% compared to the public offering price," adding, "Considering this, the closing price on the listing day, the 27th, is expected to be around 534,000 KRW." This corresponds to a market capitalization of about 125 trillion KRW, surpassing SK Hynix (93.5 trillion KRW), the second-largest in KOSPI by market cap. However, this is higher than the average securities industry forecast (70 to 100 trillion KRW).

After listing, a price correction is anticipated. Large IPO stocks last year tended to see their stock prices fall after the listing day and only recover to the first day's level after about 25 trading days. This recovery was driven by the increased weighting of KOSPI-tracking active funds and the inflow of passive funds such as KOSPI 200 and MSCI.

Liquidity Ratio is Key

Securities firms view the variable for passive fund inflow as the ratio of shares actually circulating in the market (liquidity ratio). Conservatively, early inclusion might be difficult. The commitment rate for institutional subscription volume is about 78% (based on application numbers), and adding LG Chem and employee stock ownership plans could lower the liquidity ratio further. For KOSPI 200, inclusion is difficult if the liquidity ratio is below 10%, and for MSCI, inclusion is challenging if the foreign-accessible ratio is below 15%.

If early inclusion is possible, an inflow of about 1.7 to 2 trillion KRW can be expected. IBK Securities forecasts a total inflow of 1.2722 trillion KRW starting with MSCI (394.9 billion KRW) on the 9th of next month, followed by FTSE (197.4 billion KRW), KOSPI 200 (207.4 billion KRW), and secondary battery ETFs (472.5 billion KRW).

Kiwoom Securities estimates that immediately after LG EnSol's listing, the circulating shares will be about 34 million shares, corresponding to 14.5% of the total listed shares, with the actual market circulation estimated at about 6.8 to 8.5%. Accordingly, they expect that inclusion in secondary battery-themed ETFs such as KODEX Secondary Battery Industry and TIGER Secondary Battery Theme ETFs could be faster. Han Ji-young, a researcher at Kiwoom Securities, stated, "Recently, the indices tracked by these ETFs allow new inclusion of companies that underwent physical spin-offs seven trading days after the listing day," adding, "In this case, fund inflow could begin immediately from the 27th."

This content was produced with the assistance of AI translation services.