The mandatory protection escrow period for shares acquired by LG Display employees through employee stock ownership plans ends on March 26. To prevent a concentration of selling from employee stock ownership, LG Display has decided to extend interest support for subscription payments until the end of this year.
According to the financial investment industry on the 10th, LG Display employee stock ownership members will be able to trade new shares received during the capital increase starting on the 26th, as the mandatory protection escrow is lifted after one year. However, LG Display is reportedly extending the interest support period for loans related to employee stock ownership plans, which was supposed to end with the expiration of the mandatory protection escrow, until the end of this year.
Two main reasons are cited for LG Display extending the loan interest support period. First, it aims to reduce concerns about overhang (potential selling volume). LG Display employee stock ownership members fully absorbed 28,436,860 shares allocated during the capital increase in March of last year.
Considering that LG Display had about 27,700 employees at the end of 2023, it is estimated that each person purchased an average of 1,026 new shares. Once the mandatory protection escrow ends and interest support disappears, employees could all begin selling in a short period, which would place pressure on the stock price. LG Display seems to be attempting to disperse the selling time by extending the interest support period to the end of the year.
Compared to the fact that LG Display employees enthusiastically subscribed to 100% of the allocated shares, the stock price return is underwhelming. The issuance price of the new shares during the capital increase was 9,090 won per share. Based on the closing price of 9,120 won that day, the return rate is 0.3% (30 won). Purchasing 1,026 shares yields only a valuation gain of 30,000 won. Although there are differences among securities firms, considering that the average trading commission is 0.15%, there is virtually no profit.
In contrast to Hanwha Ocean, which experienced a shortfall in employee stock subscriptions, Hanwha Ocean had a subscription rate of 84.5% during its capital increase in November 2023. The price of new shares during Hanwha Ocean's capital increase was 16,730 won, whereas the stock price at the time the mandatory protection escrow was lifted was over double (35,000 won). The closing price that day was 79,800 won, which is approximately 4.8 times.
The prolonged slump in LG Display's business was a significant factor. LG Display recorded sales of 26.6153 trillion won and an operating loss of 560.6 billion won last year. Although it restructured its business around organic light-emitting diodes (OLED) to increase sales by 24.8% compared to 2023 and nearly reduce the operating loss by 2 trillion won, it still faced an annual deficit.
By extending the loan interest support period for employee stock ownership plan subscriptions, LG Display has widened the options available to employees. Employees who have heavily leveraged (borrowed) are no longer immediately burdened by interest payments and can wait for the stock price to rise.
Securities analysts predict that LG Display will see a steep increase in profits starting in the second half of this year and turn a net profit for the year. According to financial information firm FnGuide, analysts expect LG Display to generate sales of 25.8728 trillion won and an operating profit of 535.3 billion won this year. The average target stock price for LG Display is set at 12,875 won.