Due to declining revenue, Lotte Chemical faced a liquidity crisis. The company has successfully navigated a crisis regarding the early redemption of company bonds worth 2 trillion won by obtaining investor consent to delete certain performance-related clauses.
On the 19th, Lotte Chemical held a bondholders' meeting at the Lotte World Tower in Jamsil and announced that it passed the resolution to adjust performance-related financial covenants in the management agreements for 14 public offering bonds. Following court approval, these clauses will be deleted.
The bonds in question were issued by Lotte Chemical from September 2013 to March last year and included clauses stating that the earnings before interest, taxes, depreciation, and amortization (EBITDA) must be maintained at more than five times the cumulative average interest expense over three years. EBITDA refers to the profits before interest, taxes, depreciation, and amortization, and is used as an indicator of profitability showing a corporation's ability to generate cash from operations.
However, Lotte Chemical has continued to incur losses due to oversupply from Chinese competitors and a slowdown in global demand. At the end of the third quarter, the ratio of interest expense to EBITDA dropped to 4.3 times, triggering an event of default (EOD). This allowed creditors to claim their loans from Lotte Chemical ahead of maturity, leading to rumors that the entire Lotte Group could face a liquidity crisis.
Lotte Chemical announced the bondholders' meeting on the 27th of last month and has been negotiating with them sequentially. The Lotte Group also decided to provide the Lotte World Tower in Jamsil as collateral, valued at 6 trillion won, for Lotte Chemical's bonds.
Lotte Chemical explained, "As of October, we secured a total of 4 trillion won in available liquidity, including 2 trillion won in deposits, and maintain stable liquidity. We are making efforts to improve cash flow and manage investment risks through adjustment of new and regular investments."
In addition, the company emphasized, "New and regular investments, which involve significant cash outflows, are being improved through planned adjustments, and we are expanding projects to optimize factory operations and reduce costs from the Yeosu plant in the first half of the year to the Daesan plant in the second half."
Furthermore, the company noted, "In accordance with the asset-light strategy, we are pursuing restructuring of inefficient business structures and the sale of non-core businesses. We decided to liquidate the synthetic rubber production entity LUSR in Malaysia last October and are seeking to secure liquidity of 1.3 trillion won through the utilization of equity in overseas subsidiaries."