Korean petrochemical sector to sell corporate bonds amid downturn

South Korea’s petrochemical producers are set to issue corporate bonds to take advantage of ample liquidity at the beginning of the year amid an industry downturn.

SK Incheon Petrochem Co., wholly owned by the country’s top energy company SK Innovation Co., will hold bookbuilding on Tuesday to sell 150 billion won ($102.5 million) worth of bonds with two-, three- and five-year maturities, investment banking industry sources said.

SK Incheon aims to increase the issue to up to 300 billion won if demand is strong, according to the sources.

LG Chem Ltd., South Korea’s largest petrochemical manufacturer, is scheduled to hold a bookbuilding on Friday to raise 300 billion won through bond sales for rollovers. The company’s bonds of 270 billion won issued in 2018 and notes of 250 billion won sold in 2020 are due in February.

HD Hyundai Chemical also plans to check demand for corporate bonds of 90 billion won from institutional investors on the day. South Korean credit rating agencies gave the subsidiary of HD Hyundai Oilbank Co., a South Korean crude oil refiner backed by Saudi Aramco, an A rating with a stable outlook.

SLUGGISH PETROCHEMICAL INDUSTRY

Those petrochemical companies aim to attract institutional investors, which usually spend more money at the beginning of the year given their fresh budgets.

The petrochemical industry may not benefit from the abundant liquidity, however, as the sector’s protracted downturn has hurt petrochemical ratings, sources said.

NICE Investors Service Co. lowered the outlook of LG Chem’s rating of AA+ to negative from stable on Jan. 10.

The outlooks for ratings of other petrochemical producers such as Lotte Chemical Corp., Yeochun NCC Co. (YNCC), SKC Ltd., SK Advanced and Hyosung Chemical Corp. are negative.

“The oversupply is prolonged due to China’s production capacity expansion,” said Kim Hoseop, chief analyst at Korea Investors Service, an affiliate of Moody’s Corp. “The petrochemical industry must reduce financial risks through business reorganization and restructuring to ease downward pressure on credit ratings.”

INSUFFICIENT GOVERNMENT SUPPORT

It is unclear whether the government’s steps to support the petrochemical industry will revive the sector, industry sources said.

South Korea unveiled measures to spur restructuring including plant closures and to encourage the sector to focus on value-added specialty chemicals last December.

The measures were not enough to revive the industry, however, some sources said.

Major institutional investors have already shunned petrochemical companies’ corporate bonds.

YNCC and Hyosung failed to raise their fundraising targets from investors through bond sales last year.

Write to Hyun-Ju Jang at blacksea@hankyung.com
 
Jongwoo Cheon edited this article.