Lotte Chemical Triples Dividends with 230 Billion Won... Will Funding Ease?

'Record Performance' Lotte Chemical Dividend Benefit
Iljin Materials Needs 2.7 Trillion for Acquisition
Plans to Sell Overseas Subsidiaries and Issue Corporate Bonds

[Asia Economy Reporter Oh Hyung-gil] Lotte Fine Chemical, which has posted record-high earnings for two consecutive years, held a board meeting on the 7th and decided to pay a dividend of 3,500 KRW per share. This is a 52.1% increase from 2,300 KRW in 2021. Based on the closing price of 58,400 KRW on the 6th, the dividend yield reaches 5.9%. This significantly exceeds the 3% range of fixed deposit interest rates at the five major commercial banks. The biggest beneficiary was the largest shareholder, Lotte Chemical, which is expected to receive about 38 billion KRW out of the total dividend of 89 billion KRW.

Lotte Chemical, which spent thousands of billions of KRW to acquire a large amount of Lotte Fine Chemical shares, has profited within a year. The dividend became a 'rain in a drought' amid the urgent need to secure funds for acquiring Iljin Materials and restructuring its business portfolio.

Lotte Chemical began increasing its stake in Lotte Fine Chemical from the end of November 2021. After acquiring a 31.13% stake in Lotte Fine Chemical (then Samsung Fine Chemical) from Samsung Group in February 2016, Lotte Chemical neither increased nor decreased its shares for over six years.

Then, on November 25, 2021, it started purchasing 132,148 shares for 10.6 billion KRW. In the first half of last year alone, it bought nearly 100 billion KRW worth of shares, increasing its stake. Lotte Chemical's stake, which was 31.64% (8,163,338 shares) in November 2021, rose to 43.5% (11,234,125 shares) by the end of September last year. It is estimated that more than 230 billion KRW was spent on stock purchases in just over a year. As the stake increased, dividends also rose, more than tripling from 12 billion KRW in 2021.

This was the result of anticipating Lotte Fine Chemical's growth early on. Lotte Fine Chemical is the largest ammonia distributor in East Asia and the only domestic producer of high-performance cellulose-based products. Cellulose derivatives are chemical materials made from plant pulp and are used as plant-based pharmaceutical coating materials (Anicote) and alternative meat additives (Aniadi).

With economic recovery boosting demand for chemical products and rising raw material prices, sales prices have surged, leading to a boom. Last year, sales reached 2.4638 trillion KRW and operating profit 408.5 billion KRW, up 38.4% and 67.1% respectively from the previous year.

Lotte Fine Chemical's growth is also expected to enhance Lotte Chemical's corporate value. In a situation where the petrochemical market outlook is sluggish, incorporating Lotte Fine Chemical, which is posting record-high earnings, as a subsidiary can help increase corporate value.

The dividend is expected to aid Lotte Chemical's fund-raising efforts. On the 16th of last month, Lotte Chemical sold its stake in LCPL, a subsidiary producing high-purity terephthalic acid (PTA) in Pakistan, to local company Lucky Core Industries for 192.4 billion KRW. Last month, it also conducted a paid-in capital increase worth 1.2 trillion KRW. Preparations are underway for issuing 350 billion KRW in corporate bonds soon.

This is to secure funds for the 2.7 trillion KRW acquisition payment for Iljin Materials scheduled for the end of this month and for new business investments. Lotte Chemical plans to combine its own cash holdings of 400 billion KRW, 1.3 trillion KRW raised from financial institutions, and funds secured through this capital increase to finance the acquisition.

Lotte Chemical is attempting to expand its business scope from petrochemicals to new materials such as eco-friendly batteries. Additional funds will be needed, but recent performance has been declining.

Last year, sales reached 22.2761 trillion KRW, but due to sluggish market conditions, it posted an operating loss of about 758.4 billion KRW. The loss in the fourth quarter alone was 395.8 billion KRW. Some forecasts suggest there will be no improvement for the time being.

However, the company plans not to slow down its investment pace. Lotte Chemical has decided to invest a total of 10 trillion KRW with the goal of achieving sales of 5 trillion KRW and 7 trillion KRW in the hydrogen energy and battery materials businesses respectively by 2030. It will also invest trillions of KRW in plastic recycling and bioplastics.

This content was produced with the assistance of AI translation services.