Lotte Chemical Overcomes EOD Crisis... Special Clause on Corporate Bond Performance Deleted

Special Agreement Adjustment Approved at Private Creditors' Meeting on 19th
Lotte World Tower Collateral Established with Creditors' Consent
Reduced Immediate Repayment Burden of 2 Trillion Won Corporate Bonds

Lotte Chemical resolved the breach of special covenants on corporate bonds caused by deteriorating performance through consultations with creditors. The company succeeded in deleting the problematic clause by setting Lotte World Tower, a core asset of Lotte Group, as collateral.

On the 19th, Lotte Chemical announced that it held a bondholders' meeting and approved the agenda to adjust the financial covenants related to performance on its public corporate bonds.

Lotte Chemical convened a bondholders' meeting on the 19th at Lotte Tower in Songpa-gu, Seoul, to adjust the special terms of 14 corporate bonds for which the event of default (EOD) occurred. A bondholder is seen entering the meeting hall while being guided by an employee. Photo by Kang Jin-hyung

The core of the negotiation that day was to delete the clause in the bond management agreement requiring the maintenance of a financial ratio condition: "The ratio of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to cumulative interest expenses over three years must be maintained at 5 times or more."

Lotte Chemical failed to meet this condition, triggering an event of default (EOD) on approximately KRW 2 trillion worth of 14 corporate bonds issued from September 2013 to March 2023. Creditors could demand early repayment upon occurrence of an EOD.

After announcing the bondholders' meeting on the 21st of last month, Lotte Chemical sequentially negotiated and persuaded the bondholders. In particular, by providing Lotte World Tower, a core group asset, as collateral for the corporate bonds to strengthen credit, the company gained the trust of creditors. It was reported that over 90% of bondholders expressed their consent to delete the special covenant either in writing or verbally before the meeting.

Sung Nak-sun, Chief Financial Officer (CFO) of Lotte Chemical, told reporters that "Most creditors demanded credit enhancement the most," and added, "Since credit enhancement was achieved with banks and financial institutions, they were mostly satisfied." He further stated, "There were no particular objections from creditors at the meeting."

Sung Nak-seon, Chief Financial Officer (CFO) of Lotte Chemical, is explaining to reporters on the 19th when the bondholders' meeting took place. Photo by Lee Sung-min

CFO Sung emphasized that the company has sufficient repayment capacity for corporate bonds maturing as early as next year. He explained, "We have prepared ways to raise funds in advance, such as through a Price Return Swap (PRS), so repayment next year is not an issue," and added, "Next year, the debt ratio will be lower based on individual standards."

Previously, Lotte Chemical announced plans to raise approximately KRW 1.4 trillion using PRS. In October, it signed a PRS contract worth KRW 660 billion with Meritz Securities using a 40% stake in its U.S. subsidiary LCLA. Next year, it plans to secure an additional approximately KRW 700 billion by utilizing its stake in the Indonesian subsidiary LCI. LCI is the host company of the Indonesia Line project and is preparing for commercial production of 1 million tons of ethylene next year.

Lotte Chemical is tightening control over cash flow improvement and investment risk management by adjusting the pace of investments. Following an asset-light strategy, the company plans to restructure low-efficiency businesses and continue to pursue the sale of non-core businesses. CFO Sung emphasized, "We promised investors that we would invest without exceeding EBITDA," and added, "We will definitely keep that promise."

Meanwhile, Lotte Chemical secured KRW 1.3 trillion in liquidity by utilizing overseas subsidiary stakes, including liquidating the Malaysian synthetic rubber production subsidiary LUSR at the end of October. Additionally, to reduce costs, the company is conducting operational efficiency improvements targeting its Yeosu and Daesan plants.