Lotte Chemical nears offloading Pakistani unit as part of restructuring

Lotte Group, South Korea’s sixth-largest conglomerate, is speeding up its business streamlining efforts amid mounting debts as it has moved one step closer to selling off its chemical unit in Pakistan in a third attempt.

According to sources in the chemical industry on Sunday, Lotte Chemical Corp., Korea’s No. 2 petrochemical company under the retail-to-chemical conglomerate Lotte, is set to hand over a 75.01% stake in Lotte Chemical Pakistan Ltd. (LCPL) to a local private investment firm and a Middle Eastern oil and gas company.

Last Thursday, AsiaPak Investments with operational assets in Pakistan and Hong Kong and Dubai, UAE-headquartered Montage Oil filed a notice to jointly bid for the majority stake in LCPL with the Pakistan Stock Exchange.

They still need to conduct due diligence and agree on a final offer price, according to sources.

Their offer price was not unveiled but considering that LCPL’s market capitalization was 30.5 billion rupees ($352 million) based on the stock’s closing price last Friday, the stake up for the grab is estimated at more than 100 billion won ($69 million).

This is Lotte Chemical's third try to find a new owner for its subsidiary in the South Asian country, which mainly produces purified terephthalic acid (PTA), an organic compound that is the main raw material for polyethylene terephthalate (PET), coatings, unsaturated resins and other polyester fibers.

THIRD ATTEMPT TO SELL LCPL

The Korean petrochemical company acquired LCPL for about 14.7 billion won in 2009. The subsidiary in Pakistan raked in 3.8 billion rupees in operating profit on sales of 109.2 billion rupees in 2024.

But debt-ridden Lotte Chemical decided to sell LCPL because the business did not conform to its new vision of transforming into an eco-friendly materials company with greater focus on specialty materials like polyethylene (PE), polypropylene (PP), polyethylene terephthalate (PET), lithium-ion battery materials and hydrogen.

Its first attempt to sell LCPL to Pakistan-based petrochemical firm Novatex fell through in 2023, and the next deal to sell it to a unit of the country’s conglomerate Lucky Core Industries collapsed early last year.

Has it succeeded in selling LCPL, Lotte Chemical would ease its debt burden.  

As of the end of 2024, Lotte Chemical’s total borrowings hit 10.41 trillion won, up from 9.83 trillion won in 2023.  

The company raised 660 billion won in cash from the sale of a 40% stake in Lotte Chemical Louisiana LLC, its ethylene glycol production unit in the US, last October.

It also hopes to secure about 700 billion won this year from a sale of its stake in its Indonesian unit PT Lotte Chemical Indonesia.

The proceeds from the stake sales will be used to reduce its debt, the company said.

LOTTE GROUP-WIDE RESTRUCTURING

Combined with funds from Lotte Chemical’s sale of its foreign subsidiaries’ stakes, its parent Lotte Group aims to raise more than 2 trillion won in cash early this year amid growing concerns about the group’s liquidity.

The group’s hospitality units Lotte Hotel Co. and Busan Lotte Hotel agreed to sell their total 56.2% stake in the country’s No. 1 car rental service firm Lotte Rental Co. to Hong Kong-based investment firm Affinity Equity Partners for 1.57 trillion won late last year.

The group is expected to receive the proceeds in the first half of this year, which will be used to improve the financial health of Lotte Hotel, grappling with a cash shortage due to massive loss in its mainstay duty-free business.

Earlier this month, Lotte’s confectionery unit Lotte Wellfood Co. also sold its bakery plant in Korea to a local rival, Shilla Myunggua Co., for an undisclosed amount of money, which will be invested to expand Lotte Wellfood’s manufacturing facilities overseas.

Lotte Property & Development Co., the owner of Korea’s tallest skyscraper Lotte World Tower, is also seeking to sell logistics centers in Korea.

It advanced into the logistics business to diversify its business but has decided to withdraw from the business due to little synergy with its existing businesses.

“We expect an inflow of more than 2 trillion won in funds in the first half of this year, including the proceeds from the sale of Lotte Rental,” said an unnamed official from Lotte Group.

Lotte Group will accelerate its restructuring to dispel concerns about its liquidity, the official added.

Last November, Lotte Group stocks tumbled due to swirling rumors about the group’s liquidity crisis, which the company immediately flatly denied.

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

Sookyung Seo edited this article.