LG Electronics India’s Rs 11,607 crore Initial Public Offering (IPO) is under review after InGovern Research Services reported Rs 4,717 crore in disputed tax liabilities and concerns over royalty payments. These liabilities represent 73% of the company’s net worth and include disputed income tax, excise, and service tax claims. The company has not made provisions for these matters.
Why Are There Tax Disputes?
Most disputes relate to transfer pricing for royalty and technical service payments to the Korean parent company, LG Electronics Inc. Royalty-related contingent liabilities alone are estimated at Rs 315 crore. The Korean parent can increase royalty fees up to 5% of annual consolidated turnover without shareholder approval. Historically, royalty payments ranged between 1.63% and 1.90% of revenue.
Details of the IPO
- The IPO is a 100% offer-for-sale, with all Rs 11,607 crore proceeds going to LG Electronics Inc.
- No fresh capital will be raised for business expansion.
- Post-IPO, the Korean parent will retain 85% control of LG Electronics India.
LG India’s Financials
LG Electronics India reported:
- Revenue: Rs 24,367 crore
- Net Profit: Rs 2,203 crore
- Debt Status: Debt-free balance sheet
Governance Concerns
InGovern raised concerns about governance, especially related-party transactions and the absence of independent benchmarking for royalty payments. These governance risks add to investor caution around the IPO.
Key Questions Answered
- What is the main concern with the IPO? Rs 4,717 crore in disputed tax liabilities and royalty risks.
- Will the IPO raise fresh funds? No, it is a full offer-for-sale with no new capital raised.
- Who controls LG India post-IPO? The Korean parent retains 85% control.
Conclusion: While LG India reports strong financial performance, the large contingent liabilities and governance concerns make this IPO a closely watched event for investors.
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