Original Korean article: Beulroteo
LS Cable & System will invest approximately 30 billion won to acquire additional shares in its subsidiary LS Marine Solution. Although its current stake of 67.82% is sufficient to secure management control, the company plans to raise it to 69.61% through open market purchases. Following participation in a capital increase of approximately 290.8 billion won last year, the additional share acquisition is interpreted as a high valuation of LS Marine Solution's medium to long-term growth potential and strategic value in the submarine cable business.
Additional purchases despite 67.82% stake
LS Cable & System announced on the 26th through a "Report on Trading Plans for Specific Securities of Officers and Major Shareholders" that it plans to purchase 936,037 common shares of LS Marine Solution on the open market from September 28 to October 27. The planned unit price is 32,050 won per share, the closing price on the day before the report date, and the planned amount is approximately 29.99 billion won. LS Cable & System specified the purpose of the transaction as "enhancing shareholder value."
If the purchase is completed as planned, LS Cable & System's holdings in LS Marine Solution will increase from 35.428 million shares to 36.364 million shares. The stake will rise from 67.82% to 69.61%, an increase of 1.79 percentage points. Among LS Marine Solution's total issued shares of 52.238 million, the proportion not held by LS Cable & System will decrease from 32.18% to 30.39%.
This purchase cannot be viewed solely as a measure to defend management control. LS Cable & System currently holds a 67.82% stake in LS Marine Solution. Among its holdings, 7.736 million shares are subject to exchange for Exchangeable Bonds (EB) issued by LS Cable & System, but even if all bondholders exchange their holdings for stock, LS Cable & System's stake would be approximately 53.01%. The company could maintain a majority stake without acquiring additional shares.
Once the open market purchase is completed, the company's room to maintain management control will expand further. Even assuming that 936,037 additional shares are secured and all EB-subject shares are fully exchanged, the stake would be approximately 54.80%. Since LS Cable & System is not in a situation where it must acquire additional shares to maintain management control, yet is investing approximately 30 billion won, the investment appears to be motivated by consideration of LS Marine Solution's potential for future corporate value appreciation.
Shift from capital support to equity expansion
LS Cable & System's investment in LS Marine Solution expanded from last year's large-scale capital increase. LS Cable & System subscribed in full to 13.623 million new shares allocated to it in LS Marine Solution's shareholder-allocated capital increase at 21,350 won per share. The total investment amount was approximately 290.862 billion won. At that time, LS Cable & System cited new orders for submarine cable laying vessels (CLV) as the investment purpose. Through the capital increase, LS Cable & System's holdings increased from 21.805 million shares to 35.428 million shares.
Last year's capital increase and this open market purchase differ in the nature of funds. In a capital increase, funds raised through new share issuance flow directly into LS Marine Solution. LS Marine Solution can use the secured funds for capital expenditure (CAPEX) such as vessel orders. By contrast, this open market purchase is a transaction in which LS Cable & System acquires shares held by existing shareholders from the market. No new funds flow into LS Marine Solution.
From LS Cable & System's perspective, after supporting business expansion through last year's capital increase, this year it is directly acquiring additional equity stakes. The nature of the investment has shifted from a stage of supporting capital expenditure to a stage of expanding economic equity stakes in LS Marine Solution's future corporate value appreciation.
Manufacturing and construction combined for competitive advantage
LS Marine Solution's improved performance and expanded orders align with LS Cable & System's additional share acquisition.
LS Marine Solution recorded consolidated revenue of 148.2 billion won, operating profit of 10.3 billion won, and net profit of 13.1 billion won in the first half of this year. This represents increases of approximately 33%, 61%, and 217% respectively compared to the same period last year, marking record highs for all three metrics on a half-year basis. Growth in results was driven by the Taiwan Power Company offshore wind farm submarine cable installation project and submarine communication cable installation projects in the Asia-Pacific region. Subsidiary LS Build Win is also performing ultra-high voltage underground cable construction in Singapore, Taiwan, and Saudi Arabia.
Order backlog also provides a foundation for future revenue growth. LS Marine Solution's consolidated order backlog stands at approximately 660 billion won, equivalent to approximately 2.7 times the company's annual revenue of 244.2 billion won last year. The company views the Sinan-Uiwi and Taean offshore wind projects and the West Coast HVDC (high-voltage direct current transmission) energy highway as subsequent growth drivers.
Behind LS Cable & System's high valuation of LS Marine Solution's equity stake lies the business structure of the two companies. LS Cable & System handles submarine cable manufacturing while LS Marine Solution handles submarine and underground cable construction. When LS Cable & System, which produces submarine cables, combines LS Marine Solution's construction capabilities, it becomes possible to secure orders that include installation rather than merely supplying products.
In July, LS Cable & System passed the pre-qualification (PQ) test for 525kV, 80°C-class HVDC submarine cables for the first time in Korea, and announced it would target the West Coast energy highway and the global HVDC market based on its combined order-winning capabilities with LS Marine Solution. As the submarine cable market expands from a manufacturing-focused model to one encompassing design, production, and construction, LS Marine Solution's role is expected to grow.
