LS Cable Debt Jumps 1 Trillion Won as AI Boom Drives Spending

LS Cable, a unit of LS (006260.KS), is growing rapidly as it leads a super-cycle in power infrastructure, but its debt-to-equity ratio has climbed toward 400%, far above that of its rivals, adding to financial strain. The company has sharply increased cable sales thanks to a race among Big Tech firms to build artificial intelligence data centers, but prices for copper and other raw materials have risen in step, and competition for infrastructure investment within the cable industry has intensified. Analysts warn that LS Cable could face the same pressure now hitting Big Tech firms including Anthropic, whose finances have come under strain from a data center investment race.

Cash and cash equivalents combined with deposits at financial institutions stood at 1.2187 trillion won ($830 million) at the end of June, down 57.8 billion won from 1.2765 trillion won at the end of last year, according to LS Cable on the 3rd. Borrowings over the same period rose from 2.9351 trillion won to 4.016 trillion won, an increase of more than 1 trillion won in six months. Current borrowings and bonds due within one year alone reached 3.2407 trillion won.

With cash falling and borrowings rising sharply, the debt-to-equity ratio also deteriorated. It rose from 297% at the end of 2024 to 317% at the end of last year and to 374% at the end of the first half of this year. That is the highest in the industry, exceeding rivals such as Prysmian, the world’s largest cable maker, at 200%, and Taihan Cable at 110%.

There is little prospect of an improvement in LS Cable’s financial structure in the second half. Second-half revenue is expected to reach about 5 trillion won, roughly 500 billion won more than in the first half, but capital expenditure is set to rise by about 300 billion won from the first half. Copper, the main material for cables, is forecast to cost 10% more in the fourth quarter than in the second, according to Meritz Securities. LS Cable moved earlier to shore up its cash position, issuing 500 billion won of exchangeable bonds on the 6th backed by its stake in Gaon Cable.

The weakening finances stand in contrast to LS Cable’s earnings growth this year. First-half revenue was 4.5232 trillion won and operating profit 238.4 billion won, up 18% and 44% from a year earlier for record results. For the full year, revenue is projected to approach 10 trillion won and operating profit to reach the 500 billion won range, double last year’s level. But margins in the cable business are thin, so the cash actually generated is modest relative to the top-line growth, while capital spending has risen steeply to meet surging demand from Big Tech.

As a result, LS Cable’s operating margin, which was 3.7% last year, is expected to remain in the 5% range this year. The low profitability reflects raw material costs. In the first half, 2.9003 trillion won, or 64% of revenue, went toward purchases of key raw materials including copper and aluminum. That share widened by 11 percentage points from 53% last year. Inventories of purchased materials not yet converted to cash also grew, to 2.1149 trillion won at the end of June from 1.4566 trillion won last year.

Investments that LS Cable has under way or planned total about 3 trillion won. It is building a submarine cable plant and a rare earth permanent magnet plant in the United States, each worth about 1 trillion won, a permanent magnet plant in Gumi worth 350 billion won, and a busduct plant in Mexico worth 230 billion won. Construction of a new cable-laying vessel for LS Marine Solution (060370.KS) requires another 350 billion won. Investments ranging from tens of billions to hundreds of billions of won in a European busduct plant, nuclear power cables and an ultracapacitor plant are also under consideration. Capital spending this year is 1.2881 trillion won, 1.5 times last year’s level.

Pressure to raise labor costs has compounded the strain. The LS Cable union has gone on strike for the first time in the company’s history, demanding bonuses equal to 15% of operating profit, in line with practice in the semiconductor industry.

As an unlisted company with limited funding channels, LS Cable is taking the direct route of expanding its North American investment to improve its financial structure, while pinning hopes on a new security token offering business that could turn inventories into liquid assets. Expanding production in North America and supplying Big Tech firms directly would cut logistics costs and strengthen sales. Ahead of the February implementation of revised laws on electronic securities and capital markets that will formalize security token services, the company is also weighing a plan to divide cables and copper into digital tokens for issuance.…Read more by Kim Yun-Su