Hanwha loses to Chevron in a bid to acquire 50% stake in US-based ethane cracker

Hanwha Group has lost to US-based chemical company Chevron Phillips in a bid to acquire a 50% stake in global chemical company Sasol’s ethane cracking center (ECC) located in Louisiana, for which the South Korean conglomerate offered more than $3 billion.

Hanwha's offer was believed to be much lower than Chevron's bidding price in the competition which attracted other energy giants such as ExxonMobil, LyondellBasell, and Ineos. The heated rivalry eventually hiked up the price to 4 trillion won ($3.3 billion), double the initial projection.

“Not only was there a significant price gap between Hanwha and Chevron, but the tables turned for good when Chevron eagerly accepted selling terms,” explained a source familiar with the deal on August 6.

Hanwha Solutions, the chemical arm of Hanwha Group, was one of the final and the only Korean bidder in the official tender. Other local bidders including LG Chem and private equity firm SJL Partners dropped out after the preliminary bid.

Hanwha was quite active in its efforts, creating a consortium with Daishin PE to raise about 2 trillion won. The company had planned to raise the remaining 2 trillion won in acquisition financing from multiple commercial banks.

Sasol has actively invested in the Lake Charles ECC complex in the US since 2014, injecting over $12 billion in the development process which significantly increased the company's debt.

Earlier in March, Sasol announced that it would consider selling some of its assets as part of the company's measures to address financial challenges intensified by the global pandemic and the decline in oil and chemical prices.

This offered an attractive opportunity for industry peers to acquire a valuable asset at a modest price given that the 50% stake was valued around late 2 trillion at an early stage.

Hanwha was keen on acquiring a stake in Sasol to diversify its business structure. The Korean conglomerate operates a naphtha cracking center (NCC) which distills crude oil to extract the naphtha required for ethylene. The company had taken a growing interest in ECC because it uses shale gas to make ethylene which is cheaper and less volatile in production costs compared to naphtha.

Meanwhile, there had been concerns regarding the deal as it posed burdensome conditions for local players. When determining assets for sale, Sasol decided to sell mostly general products such as ethylene instead of high-value-added products within the ECC complex which prompted LG Chem to drop out of the bid.

There were also concerns about post-merger integration given that it would be difficult for domestic companies to control local staffing compared to global chemical companies that have more resources.

By Jun Ho Cha

chacha@hankyung.com