Titan, a petrochemical subsidiary wholly owned by Lotte Chemical (100% stake), plans to raise up to 1.26 trillion won (US$1.13 billion) through issuance of new shares in the Malaysian securities market through an IPO on July 11, according to the investment bank (IB) industry on July 4. Its IPO value including old shares stands at five trillion won (US$4.5 billion). If the IPO becomes successful, Lotte Chemical will more than triple its corporate value in seven years since acquiring Titan at about 1.25 trillion won (US$1.12 billion) in 2010.
Its subscription atmosphere is, however, worse than expected. According to the Wall Street Journal (WSJ) and Reuters, Titan began a demand forecast on July 3, but it is said that Titan will lower prices and quantity because the company failed to attract more funds than expected. Titan expects the IPO price to reach up to 8.0 ringgit per share, but is likely to drop to 6.5 ringgit as demand concentrated on low prices. The number of IPO shares decreased from 740 million shares to 580 million shares. The total volume of the IPO is expected to decline by 40% from US$1.4 billion to US$ 843.79 million.
In the first place, major foreign news services expected Lotte Chemical Titan to be able to raise over US$2 billion through its listing on the Malaysian stock market. The Korean securities industry even predicted that the IPO would reach US$3 billion.
It is also concerned that a lower than expected IPO volume may disrupt a plan to build a large chemical complex in Indonesia. Titan is pursuing the construction of a large chemical plant on land of one million square meters including an NCC for naphtha cracking in Cilegon, Banten of Indonesia.
Lotte Chemical said in an investment plan document that the company will invest 83.4 percent of the funds raised via the listing of Titan on the Malaysian Stock Exchange. If the size of the subscription is set at 1.97 billion won (US$1.77 million), about 842 billion won (US$757 million) will go to factory construction.
The money needed to build the plant are estimated at 4 trillion won (US$3.6 billion). Lotte Chemical is expected to secure about 20% of the total capital needed to build the plant. This is a much smaller amount than originally expected as it was predicted that Lotte Chemical will be able to raise more than 1.4 trillion won (US%1.2 billion), which is about 35% of the total construction cost.
Although Lotte Chemical has good financial conditions thanks to a boom in the petrochemical industry, it is a real challenge for the company to raise more than 3 trillion won (US$2.7 billion).
The poor subscription of Malaysian corporation Titan’s IPO originally expected to hit five billion won is blamed on the fact that Lotte excluded Korean institutional and individual investors. As Lotte Chemical did not receive Korean investors' subscription, citing Korean financial authorities’ regulations, eventually Korean investors lost a good investment opportunity and Lotte Chemical failed to receive investment as much as they wanted. Financial institutions are considering deregulation, such as omitting a securities report when a company to be listed in countries with well-protected investment protection systems such as the United States and the United Kingdom receives investments in Korea but Malaysia is not subject to this rule.