[Edaily Marketin LEE GEON-EOM Reporter] LG Innotek(011070)Capital markets are watching closely to see if LG Innotek will soon tap the corporate bond market. With large-scale capital expenditures planned and signs of full-scale interest rate hikes emerging in the second half of the year, observers predict the company will proactively extend its maturity profile before funding costs rise further. Given its solid creditworthiness and a track record of overwhelmingly successful corporate bond offerings, analysts believe the company can attract pent-up demand for high-quality bonds at any time.

According to the financial investment industry on the 22nd, there is growing speculation that LG Innotek may issue public corporate bonds as a preemptive measure to manage its short-term debt structure. This is because, with the proportion of short-term debt having increased significantly, large-scale investments have somewhat slowed cash generation, thereby increasing the incentive to secure long-term liquidity.

Rising Share of Short-Term Debt

As of the end of the first quarter of this year,

short-term debt

accounted for 825.1 billion won, or 37.6%, of LG Innotek’s total debt of 2.1968 trillion won. This represents a 5.5 percentage point (p) increase compared to the end of the previous year (32.1%). Although this is lower than the optimal short-term debt ratio of 50%, analysts suggest that the company needs to diversify its repayment schedule, given that existing bank loans and corporate bonds are maturing one after another.

From a cash flow perspective, there is also sufficient incentive to issue corporate bonds. LG Innotek’s free cash flow (FCF) for the first quarter of this year amounted to only 859억 원, a 29% decrease compared to the same period last year (1210억 원). This was due to capital expenditures (CAPEX) totaling 2142억 won for facility investments, including semiconductor substrates (FC-BGA), which are a key driver of future growth. Simply put, this means that the actual cash the company has on hand—after deducting essential expenses such as capital investments from the money earned through operating activities—has decreased significantly.

On top of this, a series of massive investments are in the pipeline. Currently, under a strategy to cultivate semiconductor substrates for AI servers as a next-generation growth engine, LG Innotek is planning a 1 trillion won investment in its package solutions plant in Vietnam. The company explains that, given the reduction in actual cash on hand, external funding sources such as corporate bonds are essential to ensure these large-scale investments proceed without a hitch.

This stands in stark contrast to the company’s recent steep earnings growth, making it all the more noteworthy. In the first quarter of this year, LG Innotek’s operating profit reached 2953억원, and net income stood at 2291억원—a surge of 136% and 167.6%, respectively, compared to the same period last year.

Cash flow from operating activities—the cash generated from its core business—also remained robust at 3001억원. Ultimately, this indicates that despite recording record-breaking earnings and expanding its business scale, the company is finding it increasingly difficult to cover all costs with its own cash alone due to the burden of aggressive investments.

Market Expectations Rise Amid LGELECTRONICS’ Strong Sales

The

market

views changes in the macroeconomic environment during the second half of the year as a key catalyst that could bring forward LG Innotek’s funding timeline. Market interest rate volatility is on the rise, with predictions that the benchmark interest rate could climb to 3.00% by year-end.

Analysts suggest that even without an immediate repayment burden, it would be advantageous to proactively issue long-term corporate bonds to stabilize its debt structure before funding costs begin to rise significantly. In fact, the unsecured corporate bonds currently held by LG Innotek mature in May 2027 (200억 won) and August 2030 (5100억 won), so there is no immediate repayment pressure.

In particular, the industry is paying close attention to LG Innotek’s impressive track record in corporate bond issuance. Back in February 2023, during its bookbuilding process, LG Innotek generated a massive 2.8 trillion won in orders for a 200 billion won offering, creating a sensation in the market. Even considering the booming corporate bond market at the time, the company successfully issued all 2-, 3-, and 5-year bonds at yields below the individual market average (-26bp to -60bp; 1bp = 0.01 percentage point), demonstrating the strong confidence of institutional investors.

Furthermore, it is encouraging that its parent company, LGELECTRONICS(066570), has recently demonstrated formidable capital-raising capabilities in the corporate bond market. Last month, LGELECTRONICS secured 2.25 trillion won in orders during a book-building process for 250 billion won worth of corporate bonds, resulting in an under-issuance across all maturities. Despite a slight cooling of investor sentiment in the corporate bond market due to recent increases in interest rate volatility, the robust demand from institutional investors for LGELECTRONICS affiliates has been confirmed; as a result, observers predict that LG Innotek will also be able to raise funds under favorable conditions.

In this regard, an LG Innotek official explained, “We plan to closely monitor market conditions and review various funding options.”