Li $ LG Chem of South Korea FDI in Bolivia’s Lithium Industry LG Chem Global Strategy Team Scott...
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Transcript of Li $ LG Chem of South Korea FDI in Bolivia’s Lithium Industry LG Chem Global Strategy Team Scott...
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LG Chem of South Korea FDI in Bolivia’s Lithium IndustryLG Chem of South Korea FDI in Bolivia’s Lithium Industry
LG Chem Global Strategy Team
Scott HeHarvey Hong
Arash ParhamKenneth Turner
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Executive OutlineExecutive Outline
LG Chem Company Overview & Global Strategy Lithium Opportunity Risks & Challenges Proposed FDI Project Go/No Go Decision
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The LG Chem CompanyThe LG Chem Company
Company Highlights• Former LG Group Chem Division• Publicly traded (Korean Stock Exch.)• 2 primary segments
– IEM and Petrochemicals• 13,000 employees worldwide• 2008 Net Income KRW 1 trillion • Key recent partnerships
Lithium Battery supplier for:- GM (fuel cells)- Hyundai-Kia- Volvo
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Global StrategyGlobal Strategy
• Vertical integration• Hedging against future price increase of lithium carbonate
“For core business reinforcement, we need to achieve cost leadership, product leadership and market leadership. In difficult times with depressed demand and a global glut, our first and foremost challenge is to ensure cost leadership by reducing costs. By doing so, we can provide better products at cheaper prices than our competitors” - LG Chem CEO Kim Bahn-suk
Lithium Battery Value Chain
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Opportunity – Supply & DemandOpportunity – Supply & DemandLithium Industry
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Opportunity – Supply & DemandOpportunity – Supply & DemandLithium Battery Industry
• Lithium-Ion Battery Facts– Now, 84% of portable devices use lithium-ion batteries– Predicted, 60% of all electric vehicles in 10 years will operate on lithium-ion batteries (superior performance)
• LG Chem Top Competitors in Lithium Battery Industry– Sanyo (Japan)– BYD (China)– Johnson Controls-Saft Joint Venture (US-France)– Enerdel (US)– A123 (US)– Electrovaya (Canada– China BAK Battery (China)
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Risks & ChallengesRisks & Challenges
• Political Risk- Slow transition to democracy- Pro-nationalism v. Pro-privatization- Expropriation- Poor Democracy (<$10,000 PPP GDP per capita)
• Political Risk Mitigation- Political Risk Insurance: (KEIC) Korea Export Insurance Corporation
Source: ONDD 2010.
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• Past Economic Stress– Latin Amer. Debt Crisis 1980’s– Hyperinflation (nearly 60,000%)– Foreign exchange fluctuations– Recovery via economic austerity
• Current Position– 100% IMF Debt relief in 2005– Trade Surplus– Low sovereign debt/GDP– Current Account & Fiscal Surplus– Fitch currency rating “B”– Key risks remain – Central Bank
Risks & ChallengesRisks & Challenges (cont.)
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Proposed FDI ProjectProposed FDI Project
• Resource seeking greenfield JV with COMIBOL
• 40% share in $350M Lithium processing plant
• Positive NPV over 15-year horizon, highly dependent on the market price of lithium carbonate
NPV Analysis
($50,000)
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
5% 6% 7% 8% 9% 10%
Discount Rate
NP
V (
$1
00
0)
Low Lithium Carbonate Price Projection High Lithium Carbonate Price Projection
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Go/No Go DecisionGo/No Go Decision
• NO GOo Political Environment
Erratic behavior of current government Local population is anti-foreign investment Strict regulatory environment
(maximum 40% share, limited management control) Unreliable source of lithium due to uncertain political environment
o Rate of Return (Risk vs. Reward) Capital intensive project with cost overrun risks
o Assessment score below target (<75)
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Questions?Questions?
THANK YOU
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Mode of Entry FDI-JV Recommendation NO GO!
Minimum Acceptable Score 75 Earned Score 59
Consideration Categories Relative Strength
Point(10 being the
ideal condition)
Category Weight
Category Point
FinancialCapital Requirements High 5Profit Potential Moderate 8Financial Risk Moderate 6
Category Average 6.3 4 25
Strategic PositioningAccess to Scarce Recourses High 10Vertical Integration High 9Entry to New Markets High 8
Category Average 9.0 4 36
ManagerialManagement Requirement High 3Operational Control Low 2Speed of Entry High 5
Category Average 3.3 3 10
MarketEffective Customer Demand High 9CompetitorsInvestment Foreign High 2
Domestic Low 10Product Foreign Moderate 7
Domestic Low 10Export Platform High 10Easy Access to International Markets Low 4Growth Prospects High 8
Category Average 7.5 4 30
TechnologyTechnology Risk High 7Product and Process Improvements Moderate 6
Category Average 6.5 2 13
Regulatory/Political
Currency Risk Moderate 4
Protection of Intellectual Property Low 2
Expropriation Risk High 1
Agreements Enforced Low 3
Corruption High 2
Local Reaction High 2
Environmental Liability High 5
Stability of the Government Moderate 5
Category Average 3.0 5 15
Maximum Possible Points 220 129 Earned Points
Proposed FDI Project Score 59 / 100
Local population is highly suspicious of foreign investors
There is a potential for adverse environmental impacts however the laws to protect the environment are not heavily enforced
With $4600 PPP per capita income, the Bolivian democracy may not survive in the long run, however, president Morales has been able to consolidate his power in the past years and enjoys wide public support
Bolivia doesn't have a good record regarding protecting foreign assets
In the past 5 years Bolivia has nationalized many industries
Bolivian government has unilaterally broken foreign investment agreements in the past
Because of the high poverty levels and lack of transparency the government officials are susceptible to corruption
Expected growth in lithium ion battery market
The lithium ion battery is not the only technology, other technologies may emerge
Processing of Bolivia's lithium deposits is less efficient that deposits in Chile
Bolivian economies dependence on commodity exports make the currency susceptible to commodity price changes
Other countries produce lithium carbonate and can impact the supply
All the lithium deposits are owned by the Bolivian government
The majority of the products will be exported
Bolivia lacks direct access to shipping lines and the roads need significant improvements
The planning and design for the project needs to start immediately
Lithium is being used in many industries
Other international companies are submitting investment proposals to the Bolivian government
No domestic entities competing for the investment
Consistent with LG Chem's vertical integration strategy
Improving LG Chem's position in South America
Deep involvement of management anticipated due to complex environment
Minority stake limits the operational decision making power
Comments
Capital intensive project
Highly dependent on lithium carbonate price
Securing a reliable source of lithium carbonate