Korea's Lotte Chem seeks more M&As for battery materials, CEO says

South Korea’s petrochemical firm Lotte Chemical Corp., which signed a 2.7 trillion won ($1.9 billion) deal to acquire the world’s fourth-largest copper foil maker Iljin Materials Co. last month, plans to create a complete value chain of battery materials through additional M&As and to ramp up its efforts to achieve its carbon neutrality goal.   

Lotte Chemical is in talks with battery materials makers involved in anode and cathode materials, electrolytes and separators on equity deals or establishing joint ventures, Vice Chairman and CEO Kim Kyo-Hyun said in an interview with The Korea Economic Daily on Oct. 14.   

Through the acquisition of Iljin, the petroleum giant aims to narrow its gap with Korea's SK Nexilis Co., the world's No. 1 copper foil producer.

Kim also said that the acquisition of Iljin will speed up the company’s efforts to achieve RE 100, a full switch to renewable energy, by 2050, as Iljin’s Sarawak, Malaysia-based plant uses hydrogen power and manufacturing facilities to be built in Catalonia, Spain in 2024 will use solar power.  

Lotte will focus on EV battery materials instead of batteries to secure Iljin’s existing clients, such as battery maker Samsung SDI Co., and further diversify its client base, the vice chairman said.   

 BOOST PRODUCTION CAPACITY TO 230,000 TONS BY 2027

Iljin became the first Korean company to localize the manufacture of copper foil in 1978. The company produces 60,000 tons of copper foil annually from four plants — two in Iksan, North Jeolla Province, and and two in Malaysia.

As it searches for a site for new facilities in the US, the company aims to increase total production to 230,000 tons by 2027.    

Copper foil as thin as 10 micrometers (1×10⁻⁶  meters) is an anode material for lithium-ion batteries which serves as a pathway for electric current and a source of heat emission from a battery.

Iljin is the world's fourth-largest copper foil maker with a 13% market share; SK Nexilis Co. holds the top rank with a 22% share.  

Before buying Iljin, Lotte posted 21.4 billion won in operating losses in the second quarter on a consolidated basis amid a slowdown in the petrochemical market. Lotte is expected to have an annual operating loss this year, some market insiders say.

Kim said that despite Lotte’s financial concerns about the acquisition, Lotte Group Chairman Shin Dong-bin accelerated decision-making on the deal by focusing on the long-term value of domestic battery materials production for the Korean EV battery industry.

KIM DENIES HIGH VALUATION OF ILJIN

Lotte acquired a 53.3% stake in Iljin, setting a share value at 109,852 won. That was more than double Iljin’s stock price the day before signing the agreement, arousing criticism that Lotte paid too much to secure Iljin's management rights.

“You can’t calculate a corporate value based on a short-term change in the company’s share price, especially when you plan an M&A. For some investors, our purchase of management rights looked expensive as Iljin’s stock rapidly dropped during the final stage of our M&A talks,” Kim said.

Iljin's share price closed at 54,200 won on Oct. 14, up 3.69%. It hit a 52-week high of 148,000 won on Nov. 30, 2021 and has shown a downward trend since January of this year.

Kim also stressed that Lotte does not plan to inject additional capital in Iljin.

“Iljin has sufficient capital and a stable cash flow. It also has excellent cash-generating ability with some 10 to 20 years of contracts to supply copper foil to global clients,” the vice chairman said. “Even if there are some variables in its financial conditions, it will be able to extend a loan without support from its parent Lotte,” he added.

Write to Jang Seo-woo at suwu@hankyung.com
Jihyun Kim edited this article.