Issuer Summary: LG Chem

Report date: 2026-05-13
Issuer: LG Chem, Ltd.
Relevant bond issuer: LG Chem, Ltd. / LG Chem consolidated group
Primary analytical scope: LG Chem consolidated, with separate attention to LG Chem parent-only and LG Energy Solution

1. Business Snapshot and Recent Developments

LG Chem, Ltd. (“LG Chem”) is a major diversified chemical and materials company based in Korea. However, the first misconception bond investors should avoid is reading LG Chem simply as a petrochemical company. Its historical core is Petrochemicals, and it still has basic chemicals, synthetic resins, naphtha crackers, functional materials, and life sciences operations. However, consolidated credit quality is heavily affected by the battery business, investment burden, debt, cash, and earnings volatility of the listed subsidiary LG Energy Solution, Ltd. (“LGES”). This report therefore treats LG Chem not as “a major Korean chemical company,” but as “a lower-tier investment-grade industrial credit with chemicals, advanced materials, and pharmaceuticals at the parent level, and a large consolidated battery subsidiary in LGES.”

This distinction is not merely a company description; it is the starting point for credit analysis. In 2025, LG Chem reported consolidated revenue of KRW45.932 trillion and operating profit of KRW1.181 trillion. At the same time, the company described 2025 revenue excluding LGES as approximately KRW23.8 trillion and set its 2026 revenue target excluding LGES at KRW23 trillion. In other words, close to half of consolidated revenue depends on the energy solution business including LGES. In the 1Q26 materials as well, LGES accounted for KRW6.555 trillion of LG Chem’s consolidated revenue of KRW12.247 trillion. Looking only at the chemicals, materials, and pharmaceutical businesses of the LG Chem parent provides part of the corporate picture, but LGES cannot be excluded when assessing consolidated debt repayment capacity, ratings, financial ratios, and investment burden.

Credit developments from 2025 through 1Q26 can be grouped into three points. First, although consolidated operating profit improved year on year in 2025, profit attributable to owners of the parent was a loss of KRW1.819 trillion. This shows that operating profit alone does not sufficiently explain credit strength. In the audited financial statements, operating profit for 2025 was KRW1.181 trillion, but financial expenses, equity-method losses, and other non-operating expenses were heavy, resulting in a loss from continuing operations. 2025 also included asset sales and gains on business transfers, so the quality of earnings needs to be distinguished carefully.

Second, the balance sheet expanded and the debt burden increased. At end-2025, consolidated total assets were KRW101.062 trillion, total liabilities were KRW53.956 trillion, and total equity was KRW47.106 trillion. Compared with end-2024, assets, liabilities, and interest-bearing debt increased, while official financial ratios also deteriorated, with the liability ratio rising from 95.6% in 2024 to 114.5% in 2025 and the borrowings ratio rising from 57.0% to 62.7%. The 1Q26 IR materials show total assets of KRW105.7 trillion, liabilities of KRW57.6 trillion, Debt/Equity of 74.1%, and Net Debt/Equity of 54.0%. However, the official financial ratios through 2025 and the ratios in the 1Q26 materials use different presentation frameworks. They should therefore not be read as a simple continuous time series, but rather as showing that official ratios had worsened through 2025 and that the net debt burden remained high in 1Q26.

Third, the 1Q26 consolidated results showed that the 2025 improvement cannot simply be extrapolated. Consolidated revenue in 1Q26 was KRW12.247 trillion, with an operating loss of KRW50 billion and a net loss of KRW782 billion. Petrochemicals returned to operating profit due to temporary inventory valuation effects and refunds of European anti-dumping duties, but Advanced Materials moved into loss on weak battery materials demand, and LGES also recorded an operating loss due to weak North American EV pouch demand, ramp-up costs for ESS capacity expansion, and deterioration in product mix. In other words, the 2025 operating profit improvement should be viewed less as evidence that the business base has returned to a stable path and more as a phase in which multiple weak businesses are being bridged through asset sales, investment adjustments, cost reductions, and the growth option in LGES.

The company’s strategic message is portfolio transformation, capex discipline, monetisation of held assets, and securing future growth engines. At the 2025 results announcement, the CFO acknowledged weakness in petrochemicals and battery materials, while explaining that the company had maintained positive cash flow through investment discipline and asset monetisation. The company also referred to a policy of allocating about 10% of the proceeds from LGES share sales to shareholder returns. Asset sales and monetisation of LGES shares provide potential deleveraging capacity, but the sale proceeds will not all be directed to debt repayment.

In one sentence, LG Chem is an issuer that is trying to defend its investment-grade profile while facing a Korean basic chemicals downturn and a global EV battery demand adjustment, using its LGES stake, business portfolio, capital market access, and asset sale options. Without recognising this duality, investors risk misreading LG Chem either as an overly safe investment-grade issuer or as merely a loss-making chemical company.

2. Industry Position and Franchise Strength

LG Chem’s industry position rests on two elements: its historical base as a Korean and Asian chemical company, and its connection to growth businesses through batteries and advanced materials. In Petrochemicals, it has a broad product range from basic chemicals to resins, including ethylene, propylene, polyolefins, ABS, PVC, acrylics, SAP, and high-performance plastics. In Advanced Materials, it handles battery materials, engineering materials, IT materials, and semiconductor materials. In Life Sciences, it conducts R&D and sales for pharmaceuticals and biopharmaceuticals. In addition, on a consolidated basis, LGES operates a global battery platform covering EV batteries, ESS, and cylindrical batteries.

This broad business base is a strength not available to a single-product company. Even when petrochemicals are weak, Life Sciences, certain high-performance materials, and LGES’s ESS demand may provide some offset. LG Chem’s position within the LG Group is also positive for capital market access and relationships with financial institutions.

However, in credit analysis, a broad portfolio should not be equated directly with stable earnings. Petrochemicals are affected by capacity additions in China, oversupply in Asia, slow demand recovery, naphtha price volatility, and low operating rates. LG Chem has scale and technology as a major Korean chemical company, but it does not always have an absolute cost advantage against Middle Eastern low-cost feedstock, U.S. shale-derived feedstock, or large integrated Chinese facilities. The strength of Petrochemicals is therefore that “in normal conditions, the broad product portfolio and customer base can generate a certain level of earnings,” not that “high profitability can be maintained even in a deep downcycle.”

The 1Q26 operating profit in Petrochemicals is a sign of improvement, but it should be read cautiously. The segment reported revenue of KRW4.472 trillion and operating profit of KRW165 billion in 1Q, but the company explained that this included one-off factors such as inventory lag from higher raw material prices and refunds of European anti-dumping duties. From a credit perspective, the key question is whether the segment can generate profits sufficient to cover interest and maintenance investment without relying on market conditions or temporary factors.

Advanced Materials is one of the core pillars in LG Chem’s future profile. Battery materials, IT materials, engineering materials, and semiconductor materials offer room for differentiation and have connections with LGES. However, in 1Q26, the segment recorded revenue of KRW843 billion and an operating loss of KRW43 billion. Even if cathode material volumes and new products provide support, earnings are significantly affected by pricing, inventory, customer demand, and utilisation rates.

Life Sciences is small compared with Petrochemicals and LGES, but it is a revenue source with a different credit character. Pharmaceuticals and biopharmaceuticals are affected by R&D expenses, clinical trials, product approvals, drug pricing, sales regions, and out-licensing agreements. The capex burden is not as large as in petrochemicals or batteries, but there is R&D uncertainty. In 3Q25, licensing-out related revenue reportedly contributed to earnings improvement, and in 1Q26, although there were differences in export shipment timing, profitability improved through cost control. From a credit perspective, the segment is not large enough to change group leverage materially on its own, but it has some diversification value as a revenue source different from the economic cycle.

LGES is the most difficult business to handle in LG Chem credit analysis. LGES is a global battery manufacturer with growth opportunities in EV batteries and ESS. In 1Q26, LGES explained that it had secured more than 100GWh of new orders for 46-series cylindrical EV batteries, that its order backlog exceeded 440GWh as of April, and that it had also established a North American ESS production network. This is a significant business strength. At the same time, LGES recorded an operating loss of KRW207.8 billion in the same quarter. The main reasons were a decline in North American EV pouch volumes, initial costs for ESS production site expansion, and deterioration in product mix. Even as a growing battery company, earnings can fluctuate materially depending on demand timing, customer mix, policy subsidies, facility ramp-up, and technological competition.

3. Segment Assessment

In assessing LG Chem’s segments, it is easy to misread the company if Petrochemicals, Advanced Materials, Life Sciences, Farm Hannong, and LGES are placed on the same scale. Petrochemicals are large cyclical assets, while Advanced Materials is a growth materials business but sensitive to the battery cycle. Life Sciences is small but carries independent R&D risk. Farm Hannong is an agriculture-related business centred on crop protection and fertilisers, and is affected by seasonality and raw material prices. LGES is the battery subsidiary that determines the scale of consolidation, and has both growth potential and investment burden.

The table below summarises the segment situation, centred on 1Q26, based on company IR materials and supplementary press sources. Quarterly trends for 2025 can be confirmed in the IR materials, but there were retrospective adjustments associated with a change in the accounting presentation of LGES’s North American production incentives, so the figures do not fully match earlier press release values. This report therefore limits the table to confirmed 1Q26 values and treats the 2025 trend in directional terms in the body text.

Petrochemicals is LG Chem’s historical core and one of its largest credit constraints. Basic chemicals are prone to operating losses or thin profits when supply-demand conditions are weak. When large Chinese facilities, Middle Eastern and U.S. feedstock advantages, and sluggish global demand overlap, Korean naphtha-based facilities struggle to secure spreads. LG Chem has product breadth, technology, a customer base, and operating know-how, but it cannot solve structural oversupply on its own. Therefore, in Petrochemicals, investors need to keep monitoring execution of low-margin product rationalisation, the share of high-value-added products, utilisation rates, cost reductions, and asset rationalisation, rather than focusing only on short-term profitability.

Advanced Materials is an important pillar for LG Chem to reduce its dependence on petrochemicals. Battery materials, engineering materials, IT materials, and semiconductor materials are areas where customer qualification and technological differentiation tend to be more effective than in basic chemicals. In 1Q26, the company explained that cathode material volumes increased and new semiconductor material products were launched. It also stated that, going forward, high-value-added IT and engineering materials are expected to remain firm, and that it aims to turn profitable through cathode material volume expansion. However, credit analysis should not read this explanation only as a growth story. Cathode material profits fluctuate materially with lithium and nickel prices, customer inventory adjustments, EV demand, contract pricing, and utilisation. The business is not stable cash flow because it is high-growth; rather, because it is high-growth, capex, inventory, and price volatility are also large.

Life Sciences and Farm Hannong are not large enough to change consolidated leverage on their own, but they have complementary significance as earnings sources different from petrochemicals and batteries. Life Sciences is affected by R&D, out-licensing agreements, drug pricing, and regulatory approvals, while Farm Hannong is affected by seasonality in crop protection and fertilisers, raw material prices, domestic sales, and export conditions. Both showed some earnings improvement in 1Q26, but scale and continuity need to be confirmed before treating them as stable earnings sources for the whole group.

LGES is the largest variable in consolidated credit. The battery business has long-term growth potential from energy transition, EVs, ESS, North American production networks, customer contracts, and policy support. LGES’s acquisition of new orders for 46-series cylindrical EV batteries and its ESS capacity expansion plans in 1Q26 demonstrate the strength of the business base. At the same time, shifts in EV demand, North American subsidy regimes, customer inventory adjustments, factory ramp-up costs, product mix, and technological competition can materially move short-term earnings. The 1Q26 operating loss shows that even for a growth company, profits in a capital-intensive business do not emerge in a straight line.

Therefore, in assessing LG Chem’s segments, the simple view that “strong LGES offsets weak Petrochemicals” is risky. In 1Q26, Petrochemicals turned profitable, including temporary factors, while LGES was loss-making. To stabilise credit quality, investors need to see correction of low profitability in Petrochemicals, a return to profitability in Advanced Materials, and a balance between investment burden and earnings generation at LGES at the same time.

4. Financial Profile and Analysis

LG Chem’s financial analysis should not be based only on consolidated revenue and operating profit. In 2025, operating profit improved year on year, but the loss attributable to owners of the parent widened, and the company-defined Interest Coverage Ratio stayed at only 0.9x. Moreover, although operating cash flow was positive in 2025, capex was large and investing cash flow showed a substantial outflow. The credit question is how far LG Chem can fund interest payments, maintenance capex, refinancing, and necessary shareholder returns from internal funds and asset sales while continuing growth investment.

The table below extracts the key indicators needed for credit assessment. Revenue, operating profit, and capital structure for 2023-2025 are based on the company’s official Financial Highlights and 2025 audited financial statements, and 1Q26 is based on company IR materials. Unless otherwise stated, units are KRW trillion or KRW billion.

Revenue declined from KRW55.250 trillion in 2023 to KRW45.932 trillion in 2025. This appears to include weak petrochemical market conditions, lower battery materials prices, EV demand adjustment, and the effects of business disposals or reclassifications. Operating profit fell sharply in 2024 and then improved to KRW1.181 trillion in 2025, but the operating margin was only 2.6%. Official financial ratios show operating margins of 4.6% in 2023, 1.9% in 2024, and 2.6% in 2025, meaning profitability is thin relative to the company’s scale. For an investment-grade issuer, the thin margin is a more important constraint than the scale of revenue.

The deterioration in net profit is even more important. Consolidated net profit/loss in 2025 was a loss of KRW977 billion, while the loss attributable to owners of the parent was KRW1.819 trillion. The audited income statement shows that under operating profit of KRW1.181 trillion, the company incurred financial expenses of KRW2.158 trillion, equity-method losses of KRW118 billion, and other non-operating expenses of KRW4.103 trillion. Even with KRW819 billion of profit from discontinued operations, the loss attributable to owners of the parent was large. This indicates that even when the company secures operating profit, it is not fully absorbing interest payments, valuation losses, business restructuring, and non-operating items.

Cash flow looks better than earnings. Operating cash flow in 2025 was an inflow of KRW8.234 trillion, up from KRW7.012 trillion in 2024. Even after depreciation and amortisation, working capital, taxes, and interest payments, the company generates substantial cash from operations. However, investing activities showed an outflow of KRW12.471 trillion, and acquisitions of property, plant and equipment alone were KRW13.661 trillion. Because capex exceeds even a large amount of operating cash flow, the company relies on external funding, asset sales, and capital contributions from non-controlling shareholders. Financing cash flow in 2025 was an inflow of KRW6.243 trillion, with borrowings, increases in non-controlling interests, and capital contributions being significant.

In this structure, it is not correct to say that the company is safe simply because it has operating cash flow, nor is it correct to say that it faces an immediate liquidity crisis simply because it has accounting losses. Bond investors need to assess operating profit, net profit, operating cash flow, capex, and increased borrowings together.

On the balance sheet, the increase in short-term debt is notable. Short-term borrowings and short-term debt were KRW7.621 trillion at end-2024, but rose to KRW11.738 trillion at end-2025 and KRW13.117 trillion at end-1Q26. Long-term debt also increased from KRW19.755 trillion at end-2024 to KRW22.538 trillion at end-1Q26. Cash and cash equivalents were reasonably substantial at KRW9.900 trillion at end-2025 and KRW9.685 trillion at end-1Q26 on the IR basis, but not enough to cover all short-term debt. On a consolidated basis, access to refinancing markets, bank relationships, and funding capacity including LGES are assumed.

Parent-only financials also need to be examined separately. In LG Chem’s separate financial statements for 2025, revenue was KRW18.217 trillion, operating loss was KRW211 billion, and net income was KRW1.368 trillion. The net profit on a separate basis is likely to reflect significant factors related to equity stakes, investments, and business restructuring, and the parent’s standalone operating earnings power is not strong. Separate total assets were KRW34.424 trillion, total liabilities KRW12.432 trillion, and total equity KRW21.993 trillion, so the debt scale is more contained than at the consolidated level. However, the separate disclosures confirmed in this report mainly cover total assets, total liabilities, and earnings. Quantitative confirmation of parent-only cash, short-term debt, unused committed lines, and restricted cash is limited. When considering the repayment sources for parent creditors, consolidated cash alone is not sufficient unless it is also confirmed how far LGES dividends, share sales, intragroup funding transfers, and parent-only operating cash flow are usable.

The official financial ratio requiring the most attention is the decline in the company-defined interest coverage ratio from 3.9x in 2023 to 1.0x in 2024 and 0.9x in 2025. This metric is not the same as rating agencies’ adjusted EBITDA/interest. Even so, it shows that interest payment capacity relative to operating profit has narrowed significantly. When a lower-tier investment-grade issuer has interest coverage around 1x, it is difficult to say that rating headroom is thick, even if the business base and asset value are strong.

The financial profile can therefore be summarised as large in scale and operating cash flow, but thin in margin and post-interest flexibility, with debt likely to increase due to growth investment. At this stage, the business base, LGES stake value, asset sale optionality, and capital market access are supporting the debt burden.

5. Structural Considerations for Bondholders

For bondholders, the most important structural issue for LG Chem is the distinction between consolidated credit strength and the practical recovery sources available to parent-company creditors. On a consolidated basis, LGES is large, and its growth potential and asset value support LG Chem’s credit profile. However, LGES is a listed subsidiary with its own debt, investment plans, cash, and non-controlling interests. LG Chem parent-company creditors cannot freely use LGES cash. LGES shares may be a saleable asset, but the timing of monetisation, price, post-sale ownership, control, strategic relationship, and use of proceeds are uncertain.

This structure requires investors to use two analytical lenses. As a consolidated issuer, LGES’s scale, order backlog, ESS growth, and global production network support credit quality. As parent-company creditors, however, investors should not treat the value of LGES as if it were close to collateral. The amount available for debt repayment varies depending on the share price, market conditions, maintenance of control, regulation, and shareholder return policy.

LGES share sales are a major issue in the current credit story. At the 2025 results announcement, the company explained that around 10% of the funds secured through LGES share sales would be allocated to shareholder returns. This shows that sale proceeds will not all be directed to debt reduction. The evaluation should focus not on the sale itself, but on post-sale ownership, control, use of proceeds, debt reduction, and investment discipline.

Non-controlling interests are also necessary for understanding the structure. Of consolidated total equity of KRW47.106 trillion at end-2025, non-controlling interests accounted for KRW14.260 trillion. The value of listed subsidiaries including LGES is reflected in consolidated equity, but not all of it is a free buffer for parent shareholders or parent creditors.

The detailed terms of individual bonds, including offering circulars and bond documentation, have not been reviewed as of this report. Therefore, the existence of guarantees, collateral, negative pledges, change of control clauses, cross-default provisions, and financial covenants remains unconfirmed. In assessing issuer credit, consolidated ratings, liquidity, and capital market access can provide the broad framework. However, for individual bond investment, confirmation of terms is essential. Particularly for an issuer where LGES share sales or business restructuring are possible, asset sales, changes of control, subsidiary debt, and guarantee scope may affect individual bond pricing.

The relationship with LG Group should also not be confused with an explicit guarantee. LG Chem is one of the core companies of the LG Group and has brand strength and market credibility. Press reports related to Moody’s suggest that the rating incorporates some degree of possible special support from LG Corp. However, this information was confirmed through press reports rather than the full original text and differs from an explicit guarantee.

The structural conclusion is simple: LG Chem creditors need to look at both “consolidated credit strength” and “effective parent-level liquidity.” LGES cash, subsidies, order backlog, capex, and debt only become relevant to parent-company creditors through dividends, share sales, and capital policy.

6. Capital Structure, Liquidity and Funding

LG Chem’s liquidity cannot be assessed from static cash balances alone. Consolidated cash and cash equivalents were KRW9.900 trillion in the audited financial statements at end-2025, and Cash and Equivalents including cash and certain deposits with financial institutions were KRW9.685 trillion in the 1Q26 IR materials. This is a large absolute amount. However, at end-1Q26, short-term debt was KRW13.117 trillion, long-term debt was KRW22.538 trillion, and total debt was KRW35.7 trillion. Consolidated cash does not fully cover short-term debt, and investment activities continue, making access to refinancing markets and investment discipline important.

2025 cash flow showed both internal cash generation capacity and dependence on external funding. Net inflow from operating activities was KRW8.234 trillion, confirming operating cash generation. On the other hand, acquisition of property, plant and equipment was KRW13.661 trillion, and investing activities overall showed an outflow of KRW12.471 trillion. To bridge the gap, the company used a combination of borrowings, capital contributions from non-controlling shareholders, business transfers, and asset sales. Proceeds from borrowings in 2025 were KRW23.576 trillion, while repayment of borrowings and related items was KRW18.198 trillion, so net borrowings continued to increase.

In 1Q26 as well, operating cash flow was a KRW176 billion outflow. The main reason was deterioration in working capital, and the IR materials show a negative KRW1.815 trillion working capital impact. A single quarter should not be overinterpreted, but if inventory, receivables, raw material prices, and customer payment terms deteriorate, short-term borrowings increase and the liquidity buffer becomes thinner.

Funding access is a clear strength for LG Chem. It is a major Korean industrial company, an important company within the LG Group, and it has the listed subsidiary LGES, so it is likely to maintain access to domestic and international banks and bond markets. The issue is not whether refinancing is possible, but at what cost and how much rating headroom it consumes. With interest coverage having declined, if higher rates or wider spreads persist, operating profit improvement can be absorbed by financial expenses.

LGES shares and asset sales are important as liquidity buffers, but they should not be viewed with excessive optimism. In 2025, the company sold the Water Solutions business and completed the sale of the Polarizer-related business. It is also pursuing a sale-and-leaseback proposal for the building under construction at the U.S. LH Battery Company plant. This supports asset turnover and capital efficiency, but it is a one-off tool and cannot continue to substitute for structural improvement in operating margins.

The same applies to LGES share sales. The LGES stake is a large marketable asset and can be used for financial improvement when needed. However, a sale reduces the ownership ratio and future earnings contribution, and may also affect control and strategic integration. While the possibility of a sale should be recognised as a buffer, the actual amount used for debt repayment should be viewed conservatively.

Dividends and shareholder returns are also monitoring items. Since the company has indicated a policy of allocating part of LGES share sale proceeds to shareholder returns, investors should confirm how far debt reduction, liquidity preservation, and capex discipline are prioritised in a lower-tier investment-grade credit.

The near-term liquidity assessment is that liquidity is manageable but not particularly thick. Consolidated cash is large and capital market access exists, so the company is not in a situation that suggests immediate funding stress. At the same time, short-term debt has increased, operating profit is thin, 1Q26 operating cash flow was negative, and the investment burden remains large. Liquidity comfort comes less from static cash balances and more from access to bond markets, bank support, the ability to sell LGES shares and other assets, and flexibility to reduce capex. In other words, LG Chem is not an issuer with “thick liquidity from cash alone,” but one that “supplements liquidity through assets, market access, and business scale.”

7. Rating Agency View

The rating agencies’ views express LG Chem’s credit profile quite succinctly. However, this report uses S&P only to the extent confirmed in the public summary, and Moody’s through press-based summaries; full details of the original texts remain unreviewed. S&P Global Ratings affirmed the long-term issuer and issue ratings of LG Chem and LGES at BBB on 5 March 2026 and revised the outlook from Stable to Negative. The public summary cites concerns about a prolonged downturn in the chemicals business, slowing EV demand, operating losses in the battery and chemicals segments, weak EV battery demand, execution risk in the ESS ramp-up, and chemical oversupply. S&P indicates sustained Debt/EBITDA above 3.5x as a downgrade threshold for LG Chem, although the detailed definition of adjusted metrics needs to be reconfirmed in the full original text.

For Moody’s, the original release had not been directly confirmed as of this report, but a 14 November 2025 news report stated that Moody’s downgraded LG Chem and LGES from Baa1 to Baa2 and changed the outlook from Negative to Stable. According to the report, Moody’s expects LG Chem’s consolidated leverage to remain high over the next 12-18 months, citing weakness in petrochemicals and cathode materials, limited earnings growth at LGES, and increased debt associated with LGES’s North American capacity expansion. The report also notes that LGES contributes significantly to LG Chem’s consolidated earnings and that LG Chem owns 79.4% of LGES.

The reading of these ratings is clear. LG Chem remains investment grade, supported by business scale, the strategic value of LGES, importance within the LG Group, capital market access, and asset sale options. At the same time, the BBB/Baa2 level is lower-tier investment grade, and the buffer is not thick. In particular, S&P’s Negative outlook indicates that future deterioration risk is a central rating-agency concern, more than the fact that the current rating has been maintained.

Rating-agency concerns are consistent with the financial analysis in this report. 2025 operating profit improved, but the company-defined interest coverage ratio was 0.9x, the loss attributable to owners of the parent was KRW1.819 trillion, and short-term debt and total debt increased. 1Q26 also began with a consolidated operating loss. To maintain investment grade, the company needs a reduction in Petrochemicals losses, a return to profitability in Advanced Materials, monetisation of earnings from ESS and cylindrical batteries at LGES, capex reduction, and deleveraging through asset sales and share sales.

For upward rating momentum, operating margins and operating cash flow first need to improve sufficiently, and net debt needs to decline in a way that does not depend on external funding. LGES’s growth also needs to translate not merely into revenue expansion, but into improved operating profit and free cash flow. On the downgrade side, the focus would be on a situation in which chemical oversupply persists, EV demand remains weak, the LGES ESS ramp-up is delayed, Debt/EBITDA does not improve, and asset sales or investment reductions cannot absorb the interest and debt burden.

Rating-agency views should not be treated as the investor’s own judgement, but in the case of LG Chem, the rating level captures the constraints in the credit story well. It is investment grade, but it does not have the headroom of an A-category credit.

8. Credit Positioning

As a credit, LG Chem is a large Asian investment-grade industrial issuer, but not a typical stable defensive name. It is a major Korean chemical and materials company and has LGES, a global battery subsidiary, so scale and strategic value are high. However, earnings are strongly affected by petrochemical market conditions, battery demand, battery materials prices, policy subsidies, and capex cycles.

Relative to peers, LG Chem has more growth options than a pure chemical company, but it also carries the structural downturn in petrochemicals more than a pure growth battery company. The heavy weight of Petrochemicals means the company cannot fully escape the basic chemicals downcycle. At the same time, LGES and Advanced Materials mean credit quality is not determined solely by chemical market conditions. This intermediate position makes LG Chem’s relative positioning complex.

Within its rating category, as a lower-tier investment-grade credit around BBB/Baa2, LG Chem combines a strong business base with thin financial headroom. Business scale, LGES stake value, importance within the LG Group, and capital market access may be stronger than for independent chemical companies in the same rating category. However, interest coverage, net losses, investing cash flow outflows, and total debt growth suggest that the financial metrics are not those of an upper-tier investment-grade issuer. Because market data have not been checked, this report does not assess whether spreads or bond prices are cheap or expensive. Based on credit fundamentals alone, the natural positioning for LG Chem is “a lower-tier investment-grade large strategic industrial issuer.”

For bond investors, the reason to hold LG Chem is not near-term earnings strength, but the business base, LGES stake, asset sale options, investment-grade rating, and market access. Conversely, the reasons to avoid it are petrochemical weakness, EV battery demand adjustment, capex burden, low interest coverage, and deterioration in the rating outlook. The investment decision depends on which of these factors investors emphasise and how much compensation the market spread provides. With market data unconfirmed, this report does not make a hold, buy, or sell judgement, and limits itself to credit monitoring axes.

By maturity, for short- to medium-term bonds, the main supports are consolidated cash, refinancing access, investment reduction, asset sales, and the option to sell LGES shares. For long-term bonds, the key questions are whether the structural downturn in Petrochemicals can truly be addressed, whether LGES can generate stable profits beyond subsidies and investment burden, and whether competitiveness can be maintained if battery technology and the policy environment change.

In one phrase, LG Chem’s credit position is “a large industrial credit that maintains investment grade through business scale and asset value, but has thin earnings and free cash flow headroom.” The foundation is strong, but comfort within lower-tier investment grade will only increase when that foundation begins to convert into actual cash flow and deleveraging.

9. Key Credit Strengths and Constraints

LG Chem’s credit strengths and constraints are two sides of the same factors. Business scale, LGES, and capital market access are supportive, but petrochemical weakness, the battery cycle, large investment, and structural complexity from the parent-creditor perspective are constraints at the same time.

10. Downside Scenarios and Monitoring Triggers

The most important downside scenario is one in which low profitability in Petrochemicals persists while recovery at LGES and Advanced Materials is delayed. In that case, operating margins would remain low, interest coverage would not improve, and net debt would stay high even with capex cuts and asset sales. As indicated by S&P, if Debt/EBITDA remains sustainably above 3.5x, downward rating pressure would intensify.

The early signs of this scenario would appear not in revenue, but in operating margin, operating cash flow, working capital, and short-term debt. Even if volumes and orders increase, losses may remain due to price declines, inventory valuation, ramp-up costs, and customer mix.

The second downside is deterioration in liquidity and refinancing costs. Consolidated cash is large, but short-term debt is also large. If the rating outlook worsens further, bond market demand weakens, and bank borrowing costs rise, operating profit improvement may be absorbed by financial expenses. Financial expenses in 2025 were KRW2.158 trillion, exceeding operating profit of KRW1.181 trillion. If refinancing continues in an unfavourable interest rate and spread environment, credit headroom becomes thin even if capital market access itself remains available.

The third downside is a case in which asset sales or LGES share sales do not sufficiently lead to credit improvement. If sale proceeds are directed substantially to investment or shareholder returns and are not used sufficiently for debt reduction, the financial improvement will be limited. If the company needs to sell quickly in unfavourable market conditions, realised value from the stake may be lower than expected. In addition, if post-sale control over LGES or future earnings capture declines, there could also be negative implications for long-term credit quality.

The fourth downside is policy, technology, and customer risk. LGES earnings depend on North American production incentives, EV subsidies, tariffs, OEM model launches, inventory adjustments, contract pricing, and technology standards, making them risks for issuer credit as a whole.

Monitoring should proceed in the following order. First, whether quarterly Petrochemicals operating profit is improving excluding one-off factors. Second, whether Advanced Materials returns to operating profit, not merely higher cathode material volumes. Third, whether LGES can convert ESS and cylindrical battery orders into profit and operating cash flow. Fourth, whether the funding shortfall after subtracting capex from consolidated operating cash flow narrows. Fifth, whether short-term debt, total debt, the IR-defined net interest-bearing debt ratio, and company-defined interest coverage improve. Sixth, whether the use of proceeds from LGES share sales and asset sales is sufficiently directed to debt reduction or liquidity preservation.

In an improvement scenario, Petrochemicals losses need to narrow, Advanced Materials needs to turn profitable, LGES needs to become profitable, capex needs to peak out, and asset sale proceeds need to be applied to deleveraging. A single positive factor is unlikely to restore credit headroom on its own.

11. Credit View and Monitoring Focus

The current credit assessment is that LG Chem is maintainable as investment grade, but the buffer is not thick even within lower-tier investment grade. LG Chem has one of Korea’s leading chemicals and materials platforms, LGES’s global battery platform, strategic importance within the LG Group, asset and share sale optionality, and capital market access, so it is not an issuer likely to fall into near-term credit stress. At the same time, the direction of credit quality cannot be described as stable with confidence. As indicated by S&P’s Negative outlook, downward pressure remains if business recovery and deleveraging are delayed. The probability of a rapid change in credit standing does not appear high at this point, but the view could change in a short period if EV demand, petrochemical conditions, LGES share sales, or rating actions move materially.

This view is supported by the size of consolidated operating cash flow, cash balances, business scale, LGES stake value, and importance within the LG Group. Operating cash flow in 2025 was KRW8.234 trillion, and cash and cash equivalents at end-2025 were KRW9.900 trillion, supporting ordinary-course refinancing and maintenance of investment grade.

However, the constraints are heavy. In 2025, the loss attributable to owners of the parent was KRW1.819 trillion, and the company-defined interest coverage ratio was 0.9x. In 1Q26, LG Chem recorded a consolidated operating loss, and short-term debt was KRW13.117 trillion. Even large operating cash flow does not automatically lead to debt reduction.

For bondholders, the most important point is not to view LG Chem as “safe because it owns LGES.” LGES is a major credit support, but LGES cash, investment funds, debt, subsidies, and order backlog are not free repayment sources for parent-company creditors. LGES share sales are a powerful capital policy tool, but the sale ratio, price, control, use of proceeds, and allocation to shareholder returns are uncertain. Therefore, in assessing parent bonds, investors need to distinguish consolidated credit strength from parent-only liquidity.

As a practical investor stance, LG Chem is not currently a credit that must simply be avoided, but neither is it a stable credit that can be ignored. Because market data have not been checked, this report does not judge whether it is cheap or expensive. In credit fundamental terms, however, LG Chem is a lower-tier investment-grade issuer in the BBB/Baa2 area for which spread compensation needs to be checked when making hold or new investment decisions. If there is no visible improvement in petrochemicals, batteries, or capital policy, downgrade and spread-widening risk will increase. Conversely, if LGES losses narrow, Advanced Materials turns profitable, Petrochemicals shows non-temporary improvement, investing cash flow declines, and clear deleveraging through LGES share sales is confirmed, stability within lower-tier investment grade will improve.

The highest-priority monitoring items are operating profit and operating cash flow from 2Q26 onward, monetisation of ESS and cylindrical battery earnings at LGES, a return to profitability in Advanced Materials, Petrochemicals spreads and utilisation, short-term debt, the net interest-bearing debt ratio, interest coverage, and the use of proceeds from LGES share sales and asset sales. In particular, revenue growth is less important than how much cash remains for debt reduction after interest and capex. The credit view on LG Chem will be determined not by business scale, but by whether cash flow and leverage improvement can be confirmed.

12. Short Summary & Conclusion

LG Chem is a major Korean chemical and materials company and a lower-tier investment-grade industrial issuer that depends heavily, on a consolidated basis, on EV batteries and ESS through LG Energy Solution. Business scale, LGES stake value, capital market access, and asset sale optionality support credit quality, while petrochemical weakness, volatility in battery materials and LGES earnings, large investment, and weak interest coverage are constraints. Bond investors should distinguish consolidated credit strength from cash and LGES stake value that can reach LG Chem parent-company creditors, and should monitor operating cash flow, capex, LGES profitability, and deleveraging progress from 2026 onward.

13. Sources

Primary company sources

• LG Chem, Financial Highlights, Investor Relations, accessed 2026-05-13. Used to confirm 2023-2025 consolidated and separate financials, revenue, operating profit, net profit/loss, total assets, liabilities, and equity. https://www.lgchem.com/company/investment-information/financial-information/financial-summary
• LG Chem, Financial Ratios, Investor Relations, accessed 2026-05-13. Used to confirm current ratio, liability ratio, borrowings ratio, interest coverage, operating margin, ROA, ROE, and EPS. https://www.lgchem.com/company/investment-information/financial-information/stock-valuations?lang=en_US
• LG Chem, 1Q 2026 Earnings Release, 2026-04-30. Used to confirm 1Q26 consolidated results, segment revenue and operating profit/loss, financial position, cash flow, and capex/R&D. https://www.lgchem.com/upload/file/ir-events/1Q_2026_Earnings_Release_ENG.pdf
• LG Chem, FY2025 4Q K-IFRS English Consolidated Audit Report. Used to confirm 2025 audited consolidated financial statements, income statement, statement of financial position, cash flow, business disposals, asset sales, and related-party transactions. https://www.lgchem.com/upload/file/audit-report/LG_Chem_FY2025_4Q_K-IFRS_Eng_Consoliated_Audit_report%5B0%5D.PDF
• LG Corp, "LG Chem Announces 2025 Financial Results", 2026-02-02. Used to confirm 2025 results, revenue excluding LGES, 2026 revenue target, management policy, and shareholder return policy for proceeds from LGES share sales. https://www.lgcorp.com/media/release/29824
• LG Corp, "LG Energy Solution Releases 2026 First-Quarter Financial Results", 2026-04-30. Used to confirm LGES’s 1Q26 revenue, operating loss, new orders, and ESS production capacity plans. https://www.lgcorp.com/media/release/30116

Rating agency and rating-related sources

• S&P Global Ratings, "LG Chem, LG Energy Solution Outlook Revised To Negative..." public search summary, 2026-03-05. Used to confirm BBB rating affirmation, Negative outlook, and downgrade risk related to petrochemicals, EV battery demand, and Debt/EBITDA of 3.5x. Full original text not reviewed. https://www.spglobal.com/ratings/en/regulatory/article/-/view/type/HTML/id/3526312
• Investing.com, "Moody's downgrades LG Chem and LG Energy Solution to Baa2", 2025-11-14. Used as supplementary confirmation of Moody's downgrade to Baa2/Stable, consolidated relationship with LGES, leverage outlook, and upgrade/downgrade triggers. https://www.investing.com/news/stock-market-news/moodys-downgrades-lg-chem-and-lg-energy-solution-to-baa2-93CH-4359450

Secondary / cross-check sources

• ChosunBiz, "LG Chem swings to Q1 loss as Energy Solution weakness offsets petrochem gains", 2026-04-30. Used as supplementary confirmation of 1Q26 segment revenue and operating profit/loss. https://biz.chosun.com/en/en-industry/2026/04/30/LH5O5HTARNHADNRUGSKOFZJ7RA/?outputType=amp
• Seoul Economic Daily, "LG Chem Swings to Q1 Operating Loss of 49.7 Billion Won", 2026-04-30. Used as supplementary confirmation of 1Q26 operating loss and the factors behind Petrochemicals improvement. https://en.sedaily.com/markets/2026/04/30/lg-chem-swings-to-q1-operating-loss-of-497-billion-won

Unverified / Pending items