LG Electronics IPO Under Scanner After InGovern Highlights INR 4,717 Crore Tax and Royalty Issues

After InGovern Research Services identified INR 4,717 crore in contested tax liabilities, ongoing royalties, and related-party transactions, LG Electronics India’s INR 11,607 crore IPO (Initial Public Offering) is being investigated. The advising company added that the Korean parent will maintain 85% control after listing, noting that a poor decision in these procedures might severely reduce future earnings or necessitate remedies.

Findings of the InGovern

With all proceeds going straight to the parent firm and no new funds being collected for expansion, the IPO, which is a 100% offer-for-sale by Korean promoter LG Electronics Inc., is set to close today, October 9, at 5 p.m. According to InGovern, LGEIL has revealed contingent liabilities totalling INR 4,717 crore, which accounts for 73% of its total net worth.

The main source of these obligations is contested income tax, excise, and service tax claims. Citing current appeals before appellate forums and legal guidance, the advice also stated that the company has not made provisions for these proceedings.

LG India Faces Contingent Liability of INR 315 Cr

Transfer pricing on royalties and payments for technical services to the promoter account for a sizable amount of tax disputes. InGovern emphasised that royalties they pay to the promoter under the terms of the licence agreement or in other circumstances could be subject to regulatory scrutiny or action. Royalties alone accounted for INR 315 crore of LG India’s potential liabilities as of the IPO filing; this amount may increase as a result of regulatory reviews.

The advice firm also pointed out that, without shareholder consent, the Korean parent company may increase royalties from domestic production by up to 5% of yearly consolidated turnover. Over the last three years, royalty outflows have historically varied from 1.63% to 1.90% of revenue; this structure may have an impact on margins in the absence of scrutiny by minority investors.

InGovern cautioned that LG Electronics Inc. would lose its ability to produce and market under the LG brand and that operations would be seriously disrupted if it terminated or changed the perpetual licence agreement with six months’ notice.

Multiple Legal Agreements Between LG India and Other LG Entities

The promoter would have effective control over board decisions and related-party transactions when LG Electronics retains 85% of its Indian unit following the IPO. “The promoter may take into account the interests of its subsidiaries and affiliates that may not align with minority shareholders,” according to InGovern.

 The Korean parent company, LG India, and other LG Group companies have a number of licensing, technical service, and framework agreements that result in continuous governance exposure. Concerns regarding transparency and transfer pricing were raised by the advising company when it stated that “no independent benchmarking study or third-party pricing review for royalty payments is presented.”

 LG India’s IPO is a pure offer-for-sale that only benefits the promoter, even though the company reported INR 24,367 crore in revenue and INR 2,203 crore in net profit for FY25 with a debt-free balance sheet. InGovern concluded by stating that careful thought should be given to the governance issues surrounding related-party transactions and contingent liabilities.