Lotte Chemical "Breach of Corporate Bond Financial Covenants Occurred... Secured 4 Trillion Won in Liquidity"

Communicating Financial Structure and Funding Plans to Adjust Special Terms
"Limited Possibility of Expansion into Significant Risks"
Concerns Over Prolonged Performance Slump Due to Industry Downturn

Due to sluggish conditions in the petrochemical industry, Lotte Chemical, which has recorded losses for four consecutive quarters, announced on the 21st that a cause for loss of benefit of time has occurred for the corporate bonds it has issued so far. The targets are 14 corporate bonds issued from September 2013 to March last year.

The company explained that it failed to meet the covenant requiring the maintenance of a financial ratio of 'EBITDA/Interest Expense' of 5 times or more over a cumulative three-year period, which must be maintained under the bond management contract.

Lee Hoon-ki, CEO of Lotte Chemical, is presenting the company's strategy at the 'CEO Investor Day' held last July. (Photo by Lotte Chemical)

A Lotte Chemical official said, "We are currently conducting sequential consultations with bondholders regarding the occurrence of non-compliance with financial covenants," adding, "We plan to convene a bondholders' meeting to adjust the covenant terms." Detailed information about the bondholders' meeting will be disclosed soon.

Lotte Chemical plans to operate funds to ensure sufficient liquidity for the repayment of principal and interest on the bonds, preventing any issues related to the bonds. As of October, it secured a total of approximately 4 trillion won in available liquidity, including 2 trillion won in available deposits.

The debt ratio is also maintained at a solid financial level of about 75%. Additionally, the company plans to proactively raise about 1.3 trillion won based on overseas subsidiary equity as collateral.

Furthermore, large-scale cash-consuming new and maintenance investments will be adjusted to improve cash flow, and the 'Operation Excellence Project' aimed at optimizing plant operations and reducing costs is being expanded from the Yeosu plant in the first half to the Daesan plant in the second half. In particular, as part of business restructuring, the liquidation of the Malaysian synthetic rubber production subsidiary LUSR was decided last month.

On the same day, Hyun-ryul Cho, a researcher at Samsung Securities, stated in a report, "Lotte Chemical plans to pursue relaxation of corporate bond financial covenants through convening a bondholders' meeting, but the possibility of this expanding into a significant risk from a financial perspective is limited." He pointed out that recent poor performance of Lotte Chemical and violations of covenants occurred due to the Indonesian 'LINE project' (5.2 trillion won) and the acquisition of Lotte Energy Materials (2.7 trillion won).

He added, "Considering that Lotte Chemical's net borrowings currently stand at 7.2 trillion won, if these investments had not been made, the company would be in a net cash position at this point," and "Based on past cases such as Korean Air, Doosan Heavy Industries, and Hanjin Heavy Industries, financial covenant relaxations have resolved such issues, so if bondholder consent is secured this time as well, the expansion of financial risk will be limited."

Meanwhile, Lotte Chemical's management slump is prolonged. In the third quarter of this year, it recorded sales of 5.2002 trillion won and an operating loss of 413.6 billion won, marking losses for four consecutive quarters since the third quarter of last year. The basic chemical sector alone incurred an operating loss of 365 billion won. The spread (selling price minus cost) of basic chemical products such as polyethylene (PE) and polypropylene (PP) fell below the break-even point, and the shutdown costs of Lotte Chemical USA and soaring freight costs also had a negative impact.

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