"Silicon is the Future Cash Cow"...KCC Jeong Mong-jin's Determination

Emphasizing Silicon Business in New Year's Address
"Restructuring Business Around Silicon"

Jung Mong-jin, chairman of KCC, expressed his commitment to the silicone business. This year, he plans to restructure the business from the existing building materials sector to focus on materials and silicone. This is interpreted as a rebuttal to some recent concerns about KCC's silicone business.

According to KCC on the 10th, Chairman Jung emphasized in his New Year's address, "Materials and silicone are core businesses that will become 'cash cows' in the future market," adding, "We must secure competitiveness that is resilient to any changes in the global market environment by boldly investing in research and development to strengthen related technological capabilities."

Jung Mong-jin, Chairman of KCC.

KCC significantly expanded its silicone business by acquiring the U.S. silicone company Momentive Performance Materials in May 2019. After the acquisition, annual sales of the silicone business, which were around 300 billion KRW, soared to about 2.7 trillion KRW, and its share of total sales exceeded 50%.

However, the once-thriving silicone business turned to losses last year as the economic downturn prolonged. Additionally, due to reliance on borrowing about 2 trillion KRW?more than half of the acquisition cost of Momentive?KCC's total debt surged to the 5 trillion KRW range.

There is also a contractual issue with the private equity fund SJL Partners, which formed a consortium during the Momentive acquisition. KCC agreed to list Momentive on the U.S. stock market by May this year, and the contract includes a drag-along clause allowing SJL to demand a joint sale of Momentive to KCC if the listing fails. To avoid this, KCC must pay approximately 405 billion KRW, calculated by applying a 5% compound interest over five years to the value of SJL's 20% stake in Momentive. KCC began preparing for the listing by selecting a lead underwriter in August last year, but the industry views the Momentive listing as unlikely due to the economic downturn.

However, KCC remains confident. It has sufficient capacity to respond even if the Momentive listing fails. KCC holds cash-equivalent assets worth about 1 trillion KRW, including a 9.17% stake in Samsung C&T Corporation, and short-term financial products worth 500 billion KRW. Moreover, the acquisition financing of about 2 trillion KRW arranged at the time of acquiring Momentive has been extended until 2028, so there is no immediate repayment burden.

The market has also favored KCC's direction of restructuring its business rather than focusing on the sluggish silicone business. Recently, KCC's corporate bond demand forecast attracted a large sum of 1.305 trillion KRW, more than four times the target amount. This is interpreted as the market responding positively to KCC's business restructuring, which aims to break away from a structure where performance is inevitably affected by the housing and construction industry conditions.

KCC plans to accelerate the restructuring of its business structure centered on materials and silicone this year as well. Chairman Jung stated, "We must restructure the business structure focusing on materials and silicone based on solid technological capabilities," emphasizing, "It is necessary to foster creativity that can create synergy between advanced technologies such as materials and silicone through the foundational technologies of KCC's core building materials and coatings businesses."

He added, "Through selection and concentration, we will focus the company's resources on core businesses, identify and reduce inefficient elements, and prioritize strategic choices that strengthen the foundation and maximize cash flow rather than expanding the business."

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