This article was displayed on the ChosunBiz MoneyMove site at 5:57 p.m. on April 28, 2025.
LOTTE Global Logistics is set to go public in May, while the market is watching whether participants will accept the company's voluntarily lowered valuation.
LOTTE Global Logistics' public offering has several unfavorable factors that could hinder its success. The strong exit motive for financial investors (FIs), along with the fact that its parent company is already listed, cannot avoid overlapping listing controversy. Additionally, other listed affiliates, including Lotte Shopping and LOTTE Rental (now sold), had poor stock prices during their public offerings, further weakening investor sentiment.
According to investment banking (IB) industry sources on the 28th, LOTTE Global Logistics has been conducting demand forecasting for institutional investors from the 24th to the 30th. General subscription will take place on the 12th and 13th of next month. Samsung Securities and Korea Investment & Securities are the lead underwriters, with KB Securities as the co-underwriter. LOTTE Global Logistics was established in March 2019 through the merger of Lotte Logistics and LOTTE Global Logistics (formerly Hyundai Logistics).
LOTTE Global Logistics has set the desired public offering price range between 11,500 won and 13,500 won, with an expected market capitalization after listing of approximately 478.9 billion to 562.2 billion won. The planned amount for the public offering is 201.7 billion won based on the upper range of the band, with new shares and existing shares each accounting for 50%. The company intends to use the funds raised from this public offering to enhance its parcel delivery infrastructure and upgrade its smart logistics system.
Kang Byeong-gu, the CEO of LOTTE Global Logistics, expressed confidence at the IPO press conference by saying, “We will establish ourselves as the best growth stock in the capital market after the listing,” but the prevailing atmosphere in the market is one of concern about post-listing performance. Although the company has made several decisions to avoid following the path of newly listed stocks like LG CNS, which have shown poor stock performance after their public offerings, some similarities are unavoidable.
Firstly, half of the total shares being offered by LOTTE Global Logistics are from existing shares. A limited liability company established by financial investor H Private Equity (PE), referred to as LLH, will sell all of its shares amounting to 7,472,161 shares (21.9%). The existing share sales do not result in capital inflow to the company and are pointed out as an obstacle to the IPO's success. The fact that major shareholders are selling shares before the listing also negatively affects investor sentiment. LG CNS also had a public offering structure consisting of 50% new shares and 50% existing shares, with Macquarie PE, holding a 35% stake, participating in the existing share sales.
Another similarity with LG CNS is that it is pushing forward with the IPO despite unfavorable conditions in the public offering market and industry to facilitate exits for financial investors. Initially, the market expected LOTTE Global Logistics' corporate value to exceed 1 trillion won. This is due to a stock sale option contract (put option) made when the limited liability company LLH, established by financial investor H Private Equity, invested 286 billion won in LOTTE Global Logistics in 2017.
LLH has a protective measure in the form of a put option, requiring LOTTE Corporation to repurchase shares at the new share issuance price (38,088 won) with an annual compound interest of 3% if they fail to achieve a successful IPO by a certain deadline. However, due to the poor market conditions and two delays in the listing, the exercise price of LLH's put option has now reached around 50,720 won per share. This is based on the lower end of the band of 11,500 won, resulting in a difference of approximately 293.1 billion won.
The amount being raised by LOTTE Global Logistics through this new share offering is more than three times the initial estimate of about 84.8 billion won. This is, of course, calculated on the assumption of a successful listing in May as planned. If the schedule is delayed, an additional amount will be added.
Given the situation, LOTTE Global Logistics has lowered its valuation and is paying about 300 billion won to financial investors in exchange for focusing on completing the listing. This approach is seen as less burdensome in terms of costs. The company has utilized the EV/EBITDA (enterprise value divided by earnings before interest, taxes, depreciation, and amortization) valuation method due to the high proportion of non-cash expenses related to logistics operations. They selected CJ Logistics and Hanjin Logistics as peer groups for comparison and applied a discount rate of 12% to 25%. Consequently, the public offering price has been lowered by 1,763 to 3,763 won from the per-share valuation of 15,263 won determined by the EV/EBITDA.
Despite this, there are claims that its valuation has been overestimated. Excluding the dominant market leader CJ Logistics, LOTTE Global Logistics and Hanjin are competing for 2nd and 3rd place in the parcel delivery industry. Last year, LOTTE Global Logistics generated sales of 3.5733 trillion won, approximately 500 billion won more than Hanjin (3.315 trillion won), but its operating profit was 90.2 billion won, about 10 billion won lower than Hanjin (100.1 billion won). Hanjin's market capitalization is approximately 280 billion won. Even if the price is set at the lower end of the public offering, it would still exceed Hanjin's market cap by nearly double.
In addition, LOTTE Global Logistics is trading in the K-OTC market for unlisted stocks at around 15,000 won, which is not much different from the desired public offering price. This suggests that existing shareholders are not viewing the situation positively.
There are also concerns that stock prices of other listed affiliates within LOTTE Group have all been weak prior to LOTTE Global Logistics' listing. In the case of LOTTE Rental, the company faced difficulties after initially setting a high market capitalization (public offering price of 59,000 won) at the time of its listing in August 2021 but failing to achieve a successful public offering. Lotte Shopping (400,000 won) and LOTTE Innovate (formerly Lotte Information & Communications, 29,800 won) are also trading significantly below their public offering prices after listing.