The government approved the business restructuring plan for the "Daesan Project No. 1," centered on integrating the business sites of Lotte Chemical and HD Hyundai Chemical at the Daesan petrochemical complex in South Chungcheong, and will inject a support package worth 2.1 trillion won.
On the 25th, the government held a meeting of ministers on economic affairs and another on strengthening industrial competitiveness and finalized the agenda item "approval of the Daesan Project No. 1 business restructuring." It is the first business restructuring case in the petrochemical industry.
◇ Lotte Chemical NCC 1.1 million tons halted… 1.2 trillion won capital increase as self‑help effort
The core of the project is to integrate the Daesan business sites of Hyundai Chemical and Lotte Chemical into a single corporation. After partitioning the Lotte Chemical Daesan business sites, they will merge with Hyundai Chemical to establish a new integrated corporation. The equity structure will have HD Hyundai Oilbank and Lotte Chemical, the parent companies, each holding 50%.
During the three-year restructuring period, Lotte Chemical will halt operations of its 1.1 million-ton-per-year naphtha cracking center (NCC) and scale down operations of low-margin commodity downstream facilities. As a result, ethylene production capacity will fall from 1.95 million tons to 850,000 tons, but the utilization rate is expected to rise from 80% to 100%.
As part of self-help efforts, the two companies decided to each inject 600 billion won, for a total capital increase of 1.2 trillion won. They also plan to invest 245 billion won in facility integration and production efficiency improvements, and 335 billion won in conversion to high value-added and eco-friendly products.
◇ 2 trillion won in financing, electricity 4%–5% cheaper… full range of tax and permitting benefits
The government support package consists of up to 2 trillion won in financial support and about 140 billion won in non-financial support such as utilities, tax benefits, and research and development (R&D). In finance, creditor financial institutions including the Korea Development Bank will first defer repayment for three years on 7.9 trillion won of existing agreement debt.
It will also provide up to 1 trillion won in new funding for facility integration and high value-added conversion. To prevent a surge in the debt ratio due to impairment from facility shutdowns, existing loans will also be converted into perpetual bonds (up to 1 trillion won).
On taxes, relief on acquisition tax and registration license tax related to partitioning and mergers will be raised from the current 50% to up to 100%, and the cap on the deduction for net operating loss carryforwards will be expanded from 80% to 100%.
On permits, the Korea Fair Trade Commission (FTC) review period for business combinations will be shortened from 120 days to 90 days, and even before merger procedures are completed, joint conduct will be exceptionally allowed upon approval of the restructuring.
Cost-reduction support, the core of non-financial assistance, is set at 69 billion to 115 billion won. By designating the Daesan petrochemical complex as a distributed energy special zone, electricity will be supplied at prices 4%–5% lower than KEPCO's, and the period for applying zero tariffs to imported naphtha and crude oil will also be extended. In addition, 26 billion won will be invested in technology development for high value-added and eco-friendly conversion.
The government will swiftly enact and promulgate the enforcement decree of the special law on petrochemicals to establish a foundation for restructuring support, and will also announce a comprehensive support plan for the chemical industry ecosystem in the first half of this year.