LS Cable & Systems recently said it will make a 25.2 billion won ($17.58 million) equity investment in KT Submarine to foster its undersea cable business.

The cable manufacturing unit of LS Group said it will acquire 4.04 million stocks, or a 16 percent stake in KT Submarine by December, and become the second-largest shareholder of KT Submarine.

Once LS Cable exercises its call option in the four months from April 1 next year, the cable manufacturer can purchase a 42 percent stake in KT Submarine and become its largest shareholder.

A call option is a contract between a buyer and a seller to purchase a certain stock at a certain price up until a certain expiration date. The buyer of a call has the right, not the obligation, to exercise the call and purchase the stocks. On the other hand, the seller of the call has the obligation and not the right to deliver the stock if assigned by the buyer.

Established in 1995 as a joint venture of KT and Hanjin Shipping, KT Submarine has the technology to lay submarine fiber-optic cables. It also installs various offshore structures such as submarine pipelines to transport crude oil and natural gas.

Market watchers say the two companies can create synergy by having the technology to manufacture and lay undersea cables, in addition to KT Submarine’s high-tech ships and equipment to run various offshore projects including wind power and wave power plants.

Until now, LS Cable had to lease cable-laying ships or outsource installation work, but once it acquires KT Submarine, the company can do the job on its own.

LS Cable would be able to win orders in turnkey projects that cover everything from cable manufacturing to installation and maintenance.

Since LS Cable has won mega orders from global engineering, procurement and construction companies, KT Submarine could make use of LS Cable’s network to win undersea fiber-optic cable installation orders, its main area of business.

By collaborating with LS Cable, KT Submarine can secure more business opportunities, and therefore is expected to post better earnings, according to market watchers.

As governments around the world step up efforts to achieve carbon neutrality, global demand is growing fast for undersea cables that are used for offshore wind power generation.

The undersea cable market has continued to grow in Europe, the birthplace of wind power technology, and the US where large investments in climate control will be made under the Inflation Reduction Act.

The increasing global use of the internet is also likely to help the demand for submarine fiber-optic cables grow.

In the US offshore wind power generation market, less than 20 percent of the equipment are US-made, and the supply of American-made undersea cables fall short of the demand.

LS Cable recently won a 240 billion won order to supply high-voltage, direct current cables for the Norfolk Boreas Offshore Wind Farm in the North Sea of the UK, the largest-ever contract won by a Korean cable company in Europe.

LS Group Chairman Koo Ja-eun has been focusing on nurturing promising future businesses such as undersea cables, renewable energy, and materials needed to make batteries, electric vehicles, and semiconductors, since taking office in November 2021.