South Korea’s top three equity underwriters have surprisingly been excluded from a planned initial public offering (IPO) by LG Energy Solution, with market watchers commenting that it could offer a big opportunity for their smaller competitors.

LG Energy Solution, the electric vehicle battery business spun off from LG Chem, started sending out a request for proposals on January 12 to local brokers and foreign investment banks, but Korea Investment & Securities, NH Investment & Securities and Mirae Asset Daewoo have not been invited to pitch for a role in the Seoul listing.

The exclusion of Korea Investment & Securities and Mirae Asset Daewoo was largely expected because they are leading the listing of SK IE Technology, another big IPO scheduled this year. That is why many had assumed that NH Investment & Securities, the only one of the top three left, would get an invitation from LG Energy Solution.

But it has also not yet received any official invitation, which means the firm is clearly not included in the list of the battery company’s potential choices, industry watchers said. Even senior executives of the firm reportedly were unable to secure an invitation.

Industry observers are surprised, as NH Investment & Securities topped the IPO league table in 2019 and ranked second in 2020 by only a narrow margin. It had a lead role on notable deals last year, including the 962.5 billion ($875.9 million) listing of Big Hit Entertainment and the 959.3 billion won IPO of SK Biopharmaceuticals.

LG Energy Solution is expected to raise as much as 10 trillion won at an estimated valuation of 50 trillion won in what would be the largest IPO yet in the South Korea market. It is extremely rare for any firm other than the top three brokers to win a lead role in deals of such a huge size.

Samsung Life Insurance’s 4.88 trillion won IPO in 2010, now the largest deal, and Samsung Biologics’ 2.25 trillion won listing in 2016 were led by Korea Investment & Securities. NH Investment & Securities played a prime role in Netmarble’s 2.66 trillion won listing in 2017, and Mirae Asset Daewoo in Hanwha Life Insurance’s 1.78 trillion won IPO in 2010.

Samsung Securities, which led the 1.1 trillion won listing of Orange Life Insurance in 2017, was the only exception. But it also was not invited this time because it is part of the Samsung Group, which competes with LG in the electric vehicle battery market.

A big chance for smaller players

Local brokers invited by LG Energy Solution to pitch for a role include KB Securities, Daishin Securities, Shinhan Investment and Hana Financial Investment, all of which have no previous experience of leading an IPO worth over 1 trillion won.

The strongest candidate is KB Securities. It ranked sixth in the IPO league table in 2020, with notable deals led by the firm including the 485 billion won listing of JR Global REIT. The firm was also hired to lead the planned IPOs of mobile content platform Kakao Page and the internet-only Kakao Bank, both scheduled this year.

Some industry watchers say LG Energy Solution is taking a gamble, as large issuers choose one of the big three brokers to lower risks as much as possible. They can also argue that they were in the best hands even if the results are disappointing.

“LG Energy Solution appears to have taken the full responsibility for whatever the outcome might be from the IPO,” an industry insider said. “This could be a good opportunity for smaller brokerage firms, which is also good in terms of market competition.”

Invited firms will make presentations online later this week, with final selections possibly made as early as the beginning of February. (Reporting by Kyung-ju Lee)