Lotte Group denies liquidity crisis rumors to calm bond holders

Lotte Group on Thursday denied liquidity crisis rumors sparked by Lotte Chemical Corp.'s struggle to meet a bond redemption request after the South Korean petrochemical unit faced widening losses over the past few years. 

The retail-to-chemical conglomerate said in a press release it sits on 71.4 trillion won ($5.1 billion) in real estate and deposits at financial institutions out of 139 trillion won in assets as of the end of 2023.

The assets break down to 56 trillion won in real estate; 37.5 trillion won in shares; and 15.4 trillion won in deposits that it can withdraw at any time.

Lotte Group said the petrochemical industry slowdown was the main culprit of financial difficulties at Lotte Chemical.

It noted that South Korea's No. 2 petrochemical company has enough financial capacity to redeem the principal of the bonds with 4 trillion won at hand, including some 2 trillion won in bank deposits.

Lotte Chemical is embroiled in disputes with its bond holders, who argued that the company failed to meet some conditions attached to the bonds sold between September 2013 and March 2023, so Lotte must repay them even before the debts expire.

Their covenants contain clauses stating that Lotte must keep its debt-to-equity ratio below 200%, based on its consolidated earnings for three years, and its earnings before interest, tax, depreciation and amortization (EBITDA) must be at least five times larger than its debt-servicing costs.

As of the end of September, its EBITDA fell to a multiple of 4.3 compared with debt cost. Lotte said such clauses were removed for recently issued bonds.

ONGOING RESTRUCTURING

Last month, Lotte Chemical announced it would sell a 40% stake in Lotte Chemical Louisiana LLC, its ethylene glycol production unit in the US, for 660 billion won this year.

It is also working on selling off a stake in PT Lotte Chemical Indonesia to raise about 700 billion won. 

“We plan to raise money by utilizing our stake in Lotte Chemical Indonesia, but its detailed terms and conditions have not yet been fixed,” it said in a regulatory filing on Friday.

The filing was made in response to the Financial Supervisory Service’s request to clarify a local media report last month that Lotte Chemical will raise 1.4 trillion won through its subsidiaries in the US and Indonesia.

“Lotte Group keeps liquidity at a stable level and is working on asset efficiency. We focus on profitability-oriented management group-wide to improve our financial structure,” said a Lotte Group official.

Meanwhile, Lotte Chemical has decided to liquidate its rubber joint venture in Malaysia, after putting its Malaysian unit Lotte Chemical Titan Holdings on the market.

In the first nine months of this year, Lotte Chemical racked up a 660.0 billion won operating loss, nearly double the 347.7 billion won shortfall it logged for all of 2023.

Its share price nosedived to 64,800 won on Thursday, touching its lowest point since the 2008 global financial crisis. On Friday, it ended little changed at 66,400 won.

Write to Jae-Kwang Ahn at ahnjk@hankyung.com
 

Yeonhee Kim edited this article.