LG Electronics, the world’s third-largest handset maker by sales, plans to raise about Won1,000bn ($892m) in a rights issue to help turn round its troubled smartphone business.
The move proved unpopular with the group’s investors, who sent shares in the South Korean company down 13.7 per cent to Won61,600, bringing losses so far this year to almost 50 per cent.
The company plans to issue 19m shares in late November at Won55,900 per share, a 20 per cent discount to its current stock price.
“The stock sale is aimed at securing financing for investment in our core businesses. We plan to revive our global competitiveness in key areas such as smartphones through steady investment,” the company said.
The news comes amid growing concerns about the company’s poor performance in handsets and flat panels. Rating agency Fitch cut the company’s credit outlook to negative on Monday, saying its operational competitiveness is unlikely to recover significantly in the short term.
The South Korean company reported a wider than expected Won413.9bn net loss for the third quarter ended September 30. Its handset market share fell to 5.4 per cent from 8.3 per cent a year earlier.
The company’s handset division reported losses for a sixth consecutive quarter, totalling nearly Won1,000bn, as it failed to produce a hit smartphone to compete with bigger rivals such as Apple and Samsung Electronics.
“[The rights issue] is bad news for stockholders as it will dilute the stock’s value, when they are already unhappy with the company’s poor performance in the smartphone business,” said Lee Dong-jin, a fund manager at KTB Asset Management.
Although its cross-town rival Samsung Electronics has caught up fast in the high-margin smartphone segment to become the world’s largest smartphone seller, LG remains a marginal player in the competitive market.
LG did well with so-called feature phones before Apple shook the market with the iPhone. But it has fallen behind in recent years as it misread the mobile market and is still suffering from its late arrival.
“We are still waiting for a big model that we can call a hit product,” said an LG spokesman, attributing the poor performance to its lack of capital and resources.
The company aims to quadruple smartphone sales to 24m units this year by targeting cash-conscious consumers with its cheaper Optimus models. It also plans to increase sales of its latest high-end smartphones which use the new fourth-generation Long Term Evolution technology.
“Investors are concerned more about its fundamental competitiveness, rather than its short-term cash flow,” said Choi Nam-gon, analyst at Tongyang Investment Bank. “And the stock sale plan has sparked fears that its handset business may be in worse shape than they thought.”