LOTTE Chemical and HD Hyundai Chemical, the first corporations to undergo restructuring in the petrochemical sector, will try to issue corporate bonds early next year. As the petrochemical market deteriorated, there was no investor demand for corporate bonds, making it hard to raise long-term funds when needed. With government-led restructuring gaining speed, the mood has shifted, and other petrochemical corporations are also expected to move to issue corporate bonds.
According to the industry on the 2nd, LOTTE Chemical (AA-·stable) and HD Hyundai Chemical (A·negative), which were the first to submit petrochemical business reorganization plans to the government, are reviewing a corporate bond issuance in the first quarter of next year. Officials at the two companies said, "We are reviewing a corporate bond issuance early next year to match the refinancing window."
LOTTE Chemical disappeared from the corporate bond market after raising 510 billion won through bonds in Sept. 2023. As the petrochemical market worsened, investor demand shrank on concerns about a credit rating downgrade. In fact, in June, the three credit rating agencies (Korea Ratings, Korea Investors Service, NICE Investors Service) downgraded LOTTE Chemical's rating from "AA" to "AA-" in their semiannual regular reviews.
LOTTE Chemical is likely to issue new bonds in March next year to refinance 395 billion won of corporate bonds coming due. Maturities are also scheduled in April (260 billion won) and September (80 billion won), totaling 745 billion won.
So far, LOTTE Chemical has held out by repaying bonds in cash instead of refinancing corporate bonds. As funding conditions worsened, it issued short-term commercial paper (CP) with maturities under one year or secured liquidity by factoring accounts payable. Through sales of noncore subsidiaries and tight management, cash and cash equivalents on a standalone basis reached 1.38 trillion won as of the third quarter this year.
HD Hyundai Chemical last issued corporate bonds in January this year, when it raised funds by accepting a higher rate than its corporate credit rating suggested. It issued 2- and 3-year bonds at rates in the 4% range, close to the A- tier, which is one notch lower. With 24 billion won maturing in February next year and a total of 315 billion won of maturities coming due, it is expected to issue in line with the schedule.
Industry officials also see a strong possibility that petrochemical corporations in the Yeosu and Ulsan regions will move to issue corporate bonds after restructuring. Yeochun NCC (A-·negative), which faced a default crisis in August but survived with support from its major shareholders, is in urgent need of funding. Corporate bond maturities of 315 billion won come due next year and 130 billion won in 2027.
Last year, Yeochun NCC raised 100 billion won through a public corporate bond offering, but with only 4 billion won in orders, the underwriting securities firm took all the unsold bonds. When there are no investors willing to buy, the issuance rate rises. Hyosung Chemical (BBB·stable) also conducted three public corporate bond offerings last year, but not a single order came in.
The petrochemical industry expects that if restructuring effects appear next year, corporations' funding conditions will also change. The market outlook is not favorable, but individual corporations' financial structures have significant room to improve. Investor demand for corporate bonds could also revive.
There is also an outlook that as domestic securities firms move into integrated investment accounts (IMA) and short-term note issuance businesses, money will flow into areas like petrochemical corporate bonds that previously had little investor demand. Securities firms' venture capital investment funds are set to expand significantly, but there are not many investment targets rated BBB or higher under government guidelines.
If a securities firm obtains approval for the IMA business, it can raise funds up to 300% of its equity capital by combining short-term notes and IMAs. Instead, 25% of the funding must be mandatorily supplied as venture capital such as corporate loans.
An industry official said, "Once the restructuring of petrochemical corporations is settled, they will issue corporate bonds from the first quarter next year, and there is a strong possibility that IMAs and short-term notes will include those bonds."