Violation of Some Private Loan Financial Covenant Clauses
"Improving Financial Structure through Asset Efficiency"
Lotte Group has stated that there is "no problem with repayment as sufficient liquidity has been secured" in response to liquidity crisis rumors triggered by Lotte Chemical's violation of financial covenants on corporate bonds.
On the 21st, Lotte Holdings issued an official statement explaining, "The corporate bond issue of Lotte Chemical arose from profitability deterioration due to the downturn in the petrochemical industry," and added, "Lotte Chemical holds stable liquidity with a total of 4 trillion won in readily available deposits."
Recently, Lotte Chemical has been engulfed in liquidity crisis rumors after some public corporate bonds violated financial covenants inserted in the bond management contract clauses at the time of issuance. At issuance, Lotte Chemical included a clause requiring the EBITDA/interest expense ratio over three years to be maintained at 5 times or higher, but it failed to meet this promise. As of the end of the third quarter, the EBITDA/interest expense ratio stands at about 4.3 times.
Industry insiders believe that the covenant violation occurred due to poor performance caused by the industry downturn and large-scale investments such as the Indonesia 'Line Project' (5.2 trillion won) and the acquisition of Lotte Energy Materials (2.7 trillion won).
In response, Lotte Holdings stated, "A notice to convene a bondholders' meeting will be issued next week, and the meeting will be held next month to adjust the covenant terms," emphasizing, "Considering Lotte Group's assets, stable liquidity is being maintained." As of last month, Lotte Group's total assets amount to 139 trillion won, with stock holdings valued at 37.5 trillion won and the group's total real estate assets valued at approximately 56 trillion won.
Lotte Group plans to use this incident as a turning point to carry out asset efficiency improvements across the entire group to enhance its financial structure. Lotte Chemical will adjust new and ongoing investment plans that are expected to cause cash outflows to improve cash flow. The 'Operational Excellence' project aimed at optimizing plant operations and reducing costs will be expanded to the Daesan plant.
Additionally, low-efficiency businesses will be restructured, and non-core businesses will be sold. Lotte Chemical completed the liquidation of its Malaysian synthetic rubber production subsidiary LUSR at the end of last month. The company plans to secure 1.3 trillion won in liquidity by utilizing shares of its overseas subsidiaries.
Lotte Holdings emphasized, "We will maintain stable management through consultations with group affiliates," and added, "We will work closely with the main creditor banks centered on the holding company to smoothly resolve this situation."
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