Lotte Chemical Extends Operating Capital Guarantee for Indonesian 'LINE Project' by One Year... Preparing for Operation Within the Year

Despite Plans for Operation This Year, Cash Generation Delayed
3.2 Trillion Won in Total Guarantees Clouds Outlook for Performance Improvement
"Stabilizing the Supply Chain Will Have Medium- to Long-Term Benefits"

Lotte Chemical has extended its operating capital guarantee for the Indonesian LINE Project subsidiary, PT Lotte Chemical Indonesia (LCI), by one more year. With operating losses continuing for over three years, and Lotte Chemical Titan (LCT), the largest shareholder of LCI, also unable to escape deficits, the delayed commercial operation of the new project is further increasing financial pressure.

On September 30, Lotte Chemical announced in a public disclosure that it would extend the maturity of its guarantee for LCI's operating capital loan by one year, from September 2025 to September 2026. The guarantee amount is 600 million dollars (approximately 840 billion won). The guarantee also includes an automatic renewal clause upon maturity. If commercial operation is further delayed, an additional extension is possible.

On April 8th, Lee Youngjun, CEO of Lotte Chemical (third from the left), undertook on-site management at the overseas business site in Indonesia. Lotte Chemical

Lotte Chemical has recorded operating losses for more than three years since turning to a deficit in 2022. The company posted an operating loss of 384.4 billion won in 2023, 914.5 billion won last year, and an additional loss of 377.1 billion won in the first half of this year. LCT also reported sales of 2.2164 trillion won and a net loss of 397.3 billion won last year, followed by sales of 953.6 billion won and a net loss of 123.1 billion won in the first half of this year.

LCI is a joint venture established by Lotte Chemical and LCT, leading the LINE Project to build a large-scale naphtha cracking center (NCC) and downstream facilities in Cilegon, Banten Province, Indonesia. With a total investment of about 4.4 billion dollars (approximately 6 trillion won), it is a mega-project that originally aimed for commercial operation in 2023. However, the schedule was delayed due to the impact of COVID-19 and process setbacks. A Lotte Chemical representative stated, "Construction of Indonesia's LCI has already been completed, and it is currently in the commissioning phase," adding, "We expect to begin commercial operation by the end of this year."

In January 2022, Lotte Chemical and the Indonesian Investment Agency signed a memorandum of understanding (MOU) and held a signing ceremony for the engineering, procurement, and construction contract for the LINE project. Lotte Chemical

Previously, Lotte Chemical stated in conference calls and other forums that "after the plant is stabilized and the domestic market is secured, profitability can be improved by expanding the production and sales of high-margin strategic products," highlighting the potential for performance improvement through the recovery of its Indonesian investment. However, as NCC profitability has recently deteriorated, the short-term effects are expected to be limited. An industry insider commented, "Given the recent poor profitability of NCC, it will be difficult for commercial operation to immediately lead to significant performance improvement," but added, "Securing a local production base in Indonesia is highly significant in the medium to long term, as it expands global production competitiveness and stabilizes the supply chain."

With this measure, the total guarantee related to LCI remains at approximately 3.2 trillion won, combining the existing long-term payment guarantee of 2.3607 trillion won with the operating capital guarantee. The industry interprets this extension as evidence that generating cash in the short term will be difficult. Even considering that large-scale plants require time to achieve stable operation and expand sales after commissioning, the fact that the guarantee amount exceeds 3 trillion won is seen as a burden on the market. It is also expected that the effects of commercial operation will only be reflected from next year onward.