Hanwha Group and DL Group, which have been in partnership for over 20 years, are clashing over additional support for Yeochun NCC, located in the Korea's largest petrochemical complex in Yeosu, South Jeolla Province. While both companies agreed on supporting Yeochun NCC, which is experiencing poor performance, they are blaming each other for the reasons behind Yeochun NCC's management difficulties.
DL Group has shifted its stance from being willing to consider a workout to deciding to provide funds to Yeochun NCC, but it has raised issues regarding Yeochun NCC's supply prices. DL claims that Hanwha, which has taken approximately 70% of the ethylene produced by Yeochun NCC, signed a supply contract at an excessively low price.
DL stated, "DL traded ethylene at prices that allow Yeochun NCC to secure price competitiveness, but Hanwha insisted on conditions advantageous only to itself, even if that meant Yeochun NCC would incur losses. DL proposed setting a price floor and establishing a 20-year long-term contract to improve Yeochun NCC's profitability and enhance its self-sustainability, but Hanwha rejected this, resulting in a stalemate in price negotiations."
DL also said, "If the supply price contract proceeds as claimed by Hanwha, it will not guarantee appropriate price competitiveness, leading to deterioration in Yeochun NCC's cash flow and profitability, and Yeochun NCC's insolvency could recur in the future. While DL aimed to enhance Yeochun NCC's self-sustainability by trading ethylene at a price that allows for competitiveness, Hanwha insisted on prices that would inevitably lead to losses for Yeochun NCC and only favored its own conditions."
Hanwha Group is presenting opposing arguments to DL. They stated that prior to the expiration of their joint venture contract at the end of 2024, DL had been receiving ethylene at lower prices than Hanwha, which led to Yeochun NCC undergoing a tax investigation by the National Tax Service and receiving a tax disposition of approximately 100 billion won.
Hanwha Group claimed, "Yeochun NCC was imposed a corporate tax summons of 1,006 billion won for supplying ethylene and C4R1 products at low prices to DL during the National Tax Service investigation earlier this year, and 96% (962 billion won) of that tax disposition was due to the unfairness of the conditions related to transactions with DL." They asserted that Yeochun NCC supplied ethylene and other products to DL at prices lower than market rates, allowing DL to reap unjust profits.
Hanwha Group stated, "Hanwha believes that supply contracts for raw materials must be entered into under objective and fair conditions according to market principles."
In response, DL rebutted again. A representative from DL Chemical noted, "The price of ethylene varies based on its usage, which is why DL's supply price has been set lower than Hanwha's. However, Hanwha took ethylene at DL's prices and made unjust profits of 38 billion won between January and July of this year." They continued, "In the past, the National Tax Service conducted tax investigations on petrochemical products, resulting in penalties imposed on Yeochun NCC; however, after a legal challenge, the Supreme Court ruled in 2009 to cancel those penalties. Yeochun NCC plans to file for a tax review again against this new tax disposition."
Yeochun NCC is a joint venture established in April 1999 by Hanwha Group and DL Group. Both companies decided to integrate and operate their respective Naphtha Cracking Centers (NCCs) during the period when the petrochemical industry was consolidating due to the aftermath of the foreign exchange crisis (IMF). Hanwha Solutions (formerly Hanwha Petrochemical) and DL Chemical (formerly Daelim Construction) each hold 50% of Yeochun NCC's equity.