Lotte to spend $651 mn to save affiliate from Legoland woes

Lotte Group is set to inject a total of $651 million through its chemical units to save a construction affiliate from the fallout of a debt default by the domestic developer of a Legoland theme park in the country.

Lotte Fine Chemical Co. said in a filing to a financial regulator that it has decided to lend 300 billion won ($220 million) on Wednesday to Lotte Engineering & Construction Co. for three months at an interest rate of 7.65% per annum. The affiliate builder plans to entrust some of its real estate as collateral for the loan.

“Dividends from Lotte Ineos Chemical, in which we invested, increased our cashable assets to some 600 billion won,” said a Lotte Fine Chemical official. “We decided to provide the loan as it will create an interest income of 5.7 billion won.”

Lotte Chemical Corp. already provided a loan of 500 billion won with a maturity of three months and an interest rate of 6.39% per annum on Oct. 20. The petrochemical manufacturer also plans to inject 87.6 billion won, participating in the construction affiliate’s rights offering on Nov. 18.

FALLOUT FROM DEFAULT OF LEGOLAND DEVELOPER

Lotte Engineering has been struggling to secure money since the default on municipal government-guaranteed debt worth 205 billion won for Legoland Korea in Gangwon Province hammered local short-term money and corporate bond market.

The builder usually raises funds through three-month commercial papers and bridge loans, short-term borrowings, which are used until a person or company secures permanent financing or pays an existing obligation.

The default ramped up interest rates for CPs and rattled the local project financing sector although the country’s authorities took measures to alleviate the fallout. The yield for the CP with the A1 credit rating rose by 2 basis points to the year’s high of 5% per annum earlier in the day.

Lotte’s chemical units were in a better position to help the builder than retail affiliates of the country’s fifth-largest conglomerate.

Lotte Chemical and Lotte Fine Chemical logged a total of 1.8 trillion won in operating profits last year, more than triple the combined 498.3 billion won in profits of the group's retail units -- Lotte Shopping Co., Lotte Confectionery Co. and Lotte Chilsung Beverage Co -- which had driven the group’s growth.

Write to Ik-Hwan Kim at lovepen@hankyung.com
Jongwoo Cheon edited this article.