PTA Annual Production of 500,000 Tons... Sale Fell Through Earlier This Year
Asset Lightening Strategy Underway
Basic Chemicals Share Reduced from 60% to 30%
Lotte Chemical, facing a financial crisis compounded by sluggish petrochemical market conditions, has recently halted operations at its Pakistan plant. Given that Lotte Group has expressed its intention to sell non-core assets of Lotte Chemical, there are expectations that the sale process will resume.
According to local media and industry sources on the 1st, Lotte Chemical Pakistan (LCPL) plant stopped operations from the second week of last month. LCPL was acquired by Lotte Chemical in 2009 from the Dutch paint company AkzoNobel for approximately 14.7 billion KRW, and currently, Lotte Chemical holds a 75.01% stake.
LCPL produces 500,000 tons annually of terephthalic acid (PTA), a key raw material used in synthetic fibers such as polyester, PET bottles, and plastics. Previously, in January last year, Lotte Chemical signed a sales contract with local chemical company Lucky Core Industries for LCPL as part of its plan to streamline non-core businesses and focus on high-value specialty materials, but the contract was terminated in January this year.
LCPL states that the current suspension of operations is for equipment maintenance and plans to resume plant operations from the 12th. However, the petrochemical industry speculates that this may be part of efforts to improve operational efficiency and inventory management in preparation for a potential sale.
Lotte Chemical has already exited the PTA business domestically. Since the second half of 2020, it has ceased PTA production at its Ulsan plant and converted the facilities to produce high-purity isophthalic acid (PIA).
LCPL's profitability has been declining steadily over recent years. Net income dropped from 64 billion KRW at the end of 2022 to 23.7 billion KRW at the end of last year. In the third quarter of this year, sales reached 431.5 billion KRW, but net income was only 12.9 billion KRW. However, a Lotte Chemical official stated, "No decisions have been made yet regarding the sale or liquidation of LCPL."
Following the financial restructuring plan announced by the group on the 28th, Lotte Chemical is expected to accelerate the sale of low-profit assets. The company has established an asset-light strategy by reducing the proportion of basic chemicals through the sale of non-core assets and strategic business withdrawals, aiming to cut the basic chemical share from the current 60% to 30% by 2030.
In particular, significant business restructuring has been carried out at overseas sites. At the end of October, it was decided to liquidate Lotte Ube Synthetic Rubber (LUSR), a synthetic rubber production subsidiary in Malaysia, and last year, it sold all shares of Lotte Samkang Chemical and Lotte Chemical Zhaoqing, joint ventures with Chinese companies. With the liquidation of LUSR and LCPL, the number of overseas production subsidiaries will decrease from 18 in 2022 to 14.
In recent years, Lotte Chemical has faced liquidity challenges due to large-scale projects such as the Indonesia LINE project (3.1 trillion KRW) and the acquisition of Iljin Materials (2.7 trillion KRW).
Currently, it is improving financial soundness by raising funds through stakes in overseas subsidiaries. It plans to raise about 660 billion KRW within this year by utilizing a 40% stake in the U.S. ‘Lotte Chemical Louisiana (LCLA)’ rights offering and approximately 700 billion KRW next year by leveraging its stake in Lotte Chemical Indonesia (LCI).
Recently, for corporate bonds worth 2.045 trillion KRW, it has strengthened bank guarantees using the ‘Lotte World Tower,’ valued at over 6 trillion KRW, as collateral. After the bondholders' meeting on the 19th, it plans to obtain court approval to convert the bonds into guaranteed bonds by January 14 next year.
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