LOTTE Chemical and HD Hyundai Chemical will finalize this week a reorganization plan for their petrochemical businesses. As the first outcome of restructuring talks in the petrochemical industry, discussions on cutbacks at other companies are also expected to speed up.
According to the industry on the 16th, LOTTE Chemical and HD Hyundai Chemical will each hold a board meeting this week to formally approve a business reorganization plan to consolidate and streamline the two companies' petrochemical facilities within the Daesan industrial complex. The two companies earlier submitted a draft plan to the government and are said to have completed detailed consultations. They are expected to discuss follow-up procedures with relevant ministries.
The core of the plan is known to be that LOTTE Chemical will transfer its Daesan plant NCC facilities and other assets to HD Hyundai Chemical as an in-kind contribution to integrate the facilities, and HD Hyundai Chemical will establish a joint venture through a cash contribution and then readjust the two companies' equity to similar levels.
HD Hyundai Chemical's equity is currently owned 60% by HD Hyundai Oilbank and 40% by LOTTE Chemical, respectively, and the joint venture's equity may be split at a similar level between the two companies.
This is the first time a restructuring plan has been finalized since 10 petrochemical corporations signed a voluntary agreement for business reorganization on Aug. 20. As the industry's first reorganization case has emerged, the government is expected to finalize support measures for implementing the agreement through a joint effort by relevant ministries.
Industry officials agree that issues such as potential violations of the Monopoly Regulation and Fair Trade Act and tax matters need to be resolved in line with the consolidation of facilities. Under the Fair Trade Act, it is prohibited for a merger of corporations to create a company that ranks No. 1 in market share.
Given the urgency of restructuring in the petrochemical sector, the government is reportedly reviewing a grace period for applying relevant laws. Regarding concerns over regulations on collusion and monopolies, it has said it will enable smooth progress through consultations with relevant ministries, including the Fair Trade Commission, depending on each individual plan.
With the reorganization of petrochemical businesses taking its first step in the Daesan complex, additional moves are expected to emerge in the Yeosu and Ulsan complexes. In Ulsan, three companies—Korea Petrochemical Ind., SK Geocentric, and S-Oil—have signed an agreement to seek advice from an external consulting firm and are drawing up a reorganization plan.
In Yeosu, LG CHEM proposed to GS Caltex that it sell the Yeosu NCC to GS Caltex and establish a joint venture to integrate and operate the NCC, but no further progress has been confirmed. The idea of integrating LOTTE Chemical and Yeocheon NCC is contingent on first resolving the conflict between Hanwha Solutions and DL Chemical, the co-shareholders of Yeocheon NCC.
Meanwhile, the government has set the deadline for submitting reorganization plans as the end of the year.
Koo Yun-cheol, Deputy Prime Minister and Minister of Economy and Finance, warned on the 4th, "This is the last chance, and the golden time is until the end of the year," adding, "If the industry squanders this golden time, it will be difficult for the government and creditor financial institutions to remain merely as helpers."