Money for Expansion?
As Lotte Chemical has decided to increase the issue limit of corporate bonds this year by 7 times, industry watchers say that the funds that are raised through a bond issue will be spent to large production facility construction projects the company is working on at home and abroad at the same time.
According to related industry sources on March 12, Lotte Chemical will amend the articles of association to expand the issue size of convertible bonds (CB) and warrant bonds (WB) from the current 300 billion won (US$259.63 million) to 2 trillion won (US$1.73 billion) at this year’s regular general shareholders' meeting to be scheduled on March 24.
An official from Lotte Chemical said, “We have decided to raise the issue limit of corporate bonds for the first time considering the size of company and growth potential such as market capitalization and sales revenue. We will just increase the limit for now. It doesn’t mean that we will issue the bonds soon.”
In fact, Lotte Chemical has grown in size with aggressive investment and mergers and acquisitions (M&A) in the last two to three years. As the company bought Samsung SDI’s chemical business unit, Samsung Fine Chemicals and Samsung BP Chemicals for 3 trillion won (US$2.6 billion) in 2015, it has become one of two largest chemical companies in the nation, along with LG Chem, at one burst. Based on this, Lotte Chemical posted 13.22 trillion won (US$11.44 billion) in sales and 2.55 trillion won (US$2.2 billion) in operating profits last year and its market capitalization far surpassed 12 trillion won (US$10.39 billion).
Lotte Chemical say that the latest move to expand the issue limit is not due to specific investment. However, some say that the company will use it in four to five current projects to build its production plants considering the size of expansion.
Lotte Chemical plans to complete a special synthetic rubber plat in Yeosu, South Jeolla Province, in cooperation with Italian chemical company Versalis, by the end of the first half of this year. The two companies invested 810 billion won (US$701 million) in total in the project, including the latest investment of 120 billion won (US$103.85 million). Also, Malaysia-based Lotte Chemical Titan will complete the expansion of ethylene production facility with a capacity of 90,000 tons in the second half. In addition, the company is currently building a shale gas-based ethane cracking center (ECC) in Louisiana, the U.S., with the investment of 2.9 trillion won (US$2.51 billion). The ECC plant in the U.S. will be completed in the second half of next year. Lotte Chemical’s ECC expansion project in Yeosu to increase a production capacity from 1 million tons to 1.2 million tons will be also completed in the second half of next year.
In particular, Lotte Chemical recently submitted a letter of intent to acquire Singapore petrochemical company Jurong Aromatics Corp. (JAC) which requires the investment of trillions of won. JAC has production facilities to produce petroleum products, such as air fuel, diesel fuel, naphtha and liquefied petroleum gas (LPG), and main materials of petrochemical products, including pxylene and benzene.
An official from the industry said, “Lotte Chemical is currently making the most aggressive investment among domestic petrochemical companies. As the company is expected to need 2 trillion to 3 trillion won (US$1.73 billion to 2.6 billion) for ongoing large projects and additional M&As this year alone, it will make best use of the bond issue to raise funds.”