Lotte Chemical, which suffered from large-scale mergers and acquisitions (M&A) transactions and deterioration in liquidity of affiliated construction companies, has succeeded in selling its subsidiary in Pakistan and was able to relieve its financial burden.
The group will be able to secure 190 billion won in funds through this sale, and Lotte E&C is expected to improve the group’s fund situation by repaying its debts early.
According to the investment banking (IB) industry on Jan. 16, Lotte Chemical decided to sell its Pakistani subsidiary Lotte Chemical Pakistan (LCPL) to a Pakistani chemical company after contacting the original buyer for the sale of management rights.
The transaction target is the entire stake (75%) of LCPL owned by Lotte Chemical, and the transaction price was confirmed at 192.3 billion won.
The acquirer is Lucky Core Industries, a local chemical company. The company, which was listed on the local stock market as ICI Pakistan, changed its name to Lucky Core Industries in December of last year.
Lotte Chemical decided on this at the board of directors on Jan. 13. The two sides will sign a stock purchase agreement (SPA) on Jan. 26 and will complete it within this year after reviewing the business combination report by the Pakistani antitrust authorities.
LCPL was acquired by Lotte Chemical from Akzo Nobel, a Dutch paint company, for 14.7 billion won in 2009. It mainly produces terephthalic acid (PTA), an intermediate raw material for synthetic fibers and PET bottles.
The company made an operating profit of about 48.8 billion won in 2021. After 10 years of acquiring LCPL, Lotte Chemical decided to resell it at 13 times the acquisition price.
After the news announced, the closing price of Lotte Chemical recorded 182,500 won, up 1.96% (3,500 won) from the previous day. Lotte Chemical started to organize overseas subsidiaries in order to clean up non-core businesses and seek business efficiency.
An official of Lotte Chemical explained, "We decided to sell it because it did not meet our mid- to long-term vision of expanding high-value-added specialty products."
Previously, Lotte Group continued negotiations with Pakistani petrochemical company Novatex until the end of last year. Novatex said through the Pakistan Stock Exchange that it had submitted a proposal to acquire the stake at the time. However, as the Pakistani government is paying attention to capital outflows such as the dollar amid the global trend of rising interest rates and high exchange rates, some of the procedures proceeded slowly and the negotiations finally collapsed at the beginning of this month.
Immediately after the breakdown, Lotte Chemical looked at the local situation in Pakistan, sought for another buyer, and negotiated with Lucky Core Industries as soon as possible.
In July of last year, when the news of the sale was announced, LCPL’s stock price was 30 Pakistani Rupees (PKR) per share but has recently been forming around 27 rupees. Its market cap is around 41.7 billion Pakistani rupees (about 250 billion won).
The liquidity of Lotte Chemical will be able to breathe as funds of the level of 200 billion won are transfused at once. Lotte Chemical has to pay 2.7 trillion won for the acquisition of Iljin Materials by the end of next month.
Last year, the group decided to secure more than 1 trillion won of the purchase price of Iljin Materials through a paid-in capital increase in the form of a public offering, raising concerns in the market.
However, as affiliates such as Lotte Corporation, Lotte Hotel, Lotte Fine Chemical, and Meritz Securities recently created a joint operation fund worth 1.5 trillion won to support Lotte E&C, it is interpreted that parent company Lotte Chemical has been able to manage its funds. In addition, Lotte E&C repaid the 500 billion won borrowed from Lotte Chemical early this month.
Lotte Chemical, which has been able to manage funds more stably, plans to continue investing in new businesses such as hydrogen and battery materials as planned.