LG Philips LCD targets NYSE

The world''s largest manufacturer of TFT-LCD panels is preparing one of the largest and most interesting equity offerings from Korea this year, with plans to raise $1 billion from a simultaneous ADR and domestic IPO.

Final bake-offs for the deal took place in Seoul yesterday (Thursday) between ABN AMRO, JPMorgan, Morgan Stanley, Salomon Smith Barney and UBS Warburg. Experts within the TFT-LCD industry say that alongside LG Securities, two international banks are likely to be chosen.

The offering is being driven by the hugely expensive and capital intensive nature of the TFT-LCD sector where new fabs cost in excess of $1.5 billion. The Koreans also continue to push ahead with new technological advancements at the expense of the Taiwanese, with the unstated aim of driving some of their smaller rivals out of the market.

Analysts says the Taiwanese are at least six months behind the Koreans in ramping up to 5G and in a number of instances have struggled to get funding in place. By contrast, the Koreans, or more precisely LG Philips and Samsung Electronics, are already looking at 6G with a view to capitalising on demand for large size flat screen TVs. In this respect larger fabs not only allow for the production for larger panels, but are also more efficient in terms of operating margins.

Under the current timetable, LG Philips LCD is looking at a July launch, or September at the latest. The company will be raising all new equity and is said to be more intent on raising funds rather than satisfying any particular strategic objectives. As such it wants to become the first Korean company to undertake a simultaneous IPO in New York and Seoul. But if it becomes bogged down in talks with the regulators, industry experts say it is said likely to scrap the domestic listing in favour of an ADR, which it feels will raise more money.

LG Philips LCD is a 50/50 joint venture between LG Electronics and Koninklijke (Royal) Philips Electronics NV. During 2002, the company recorded revenue of Won3.518 trillion ($2.9 billion) and operating profit of Won273.9 billion ($231.3 million).

However, as a result of the severe drop in panel prices, immature yields from the new fabs and 5G related substrate problems, some analysts estimate the company recorded negative operating margins during the fourth quarter. This is calculated to equate to an operating loss of $93 million on revenue of $677 million and an EBITDA margin of minus 13% compared to 8% during the third quarter.

Panel prices peaked last summer when 17" panels hit an average selling price of $380 and 15" panels $262. Recently they have crept back off their lows of $175 and $135, with the Koreans currently estimated to be selling 17" panels for $275 and 15" for about $185. The break-even cost of a 17" panel is said to be about $220.

But a number of analysts believe that while prices are starting to rise, increasing supply will start to eat into prices again by the third quarter. Market research firm DisplaySearch has forecast that 17" panels could end the year at about $220 and 15" at $175.

LCD monitors are currently the biggest driver for 15" panels accounting for roughly 60% of all demand. LCD TV accounted for about 1.1% during 2002, but is expected to grow to 2.4% this year according to DisplaySearch.

For LG Philips LCD, the fourth quarter may not have been spectacular in revenue terms, but the company did manage to pip its arch rival Samsung Electronics as the world's largest producer by market share. LG Philips is now estimated to control a 19.7% market share, compared to 17.2% in the third quarter, while Samsung now stands at 18.2% compared to 17.2% in the third quarter.

Behind these two, New York-listed Au Optronics has a 12.5% market share, Chi Mei Optoelectronics 8.3%, Sharp 7.3%, Chunghwa Picture Tubes 6.1%, Hannstar 4.9%, Hitachi Display 4.8%, Toshiba Matsushita Display 4.2% and Quanta Display 3.2%.

Later this year, LG Philips Korean parent LG Electronics is also hoping to raise ADR funding, with Morgan Stanley and Salomon Smith Barney mandated for a deal, which would raise about $350 million at current market prices.

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