Top petrochemical makers secure cash on economic slowdown woes

South Korea's top petrochemical firms raised 2.6 trillion won ($2.1 billion) via corporate bond sales and rights offering earlier this month to gird for worsening economic conditions.

Lotte Chemical Corp. raised 1.22 trillion won of capital via rights offerings in January. LG Chem Ltd., SK Geocentric Co. and GS Energy Corp. respectively secured 800 billion won, 300 billion won and 250 billion won in cash through bond issuance.

Lotte Chemical, a unit within conglomerate Lotte Corp., is set to use the proceeds for the acquisition of a 53.3% stake in local battery material maker Iljin Materials Co., which totally cost of 2.7 trillion won. The petrochemical firm will also secure cash by selling its Pakistani affiliate Lotte Chemical Pakistan Ltd. for 192.3 billion won, which is due Jan. 26. 

Other companies, which issued bonds, will use the funds to repay maturing bonds with increased financing costs.

SK Geocentric, a unit of SK Group's intermediate holding firm SK Innovation Co., issued 300 billion won worth of bonds at 4.17-4.54% of annualized yield. The company will use the proceeds to repay the same amount of maturing bonds at 1.68-2.55% of yield. The yield gap has created additional 7 billion won of interest costs.

The local petrochemical firms are forecast to struggle with deteriorating financial conditions and economic uncertainties this year.

Lotte Chemical, which posted 21.4 billion won and 423.9 billion won in operating losses during the last year's second and third quarters, respectively, is expected to announce a loss for the October-December quarter of 2022.

Hyosung Chemical Corp. is also anticipated to post a deficit for the fourth quarter of 2022, after losses of 68.1 billion won in the second quarter and 139.8 billion won in the third quarter of the last year.

Last week, the firm held a bookbuilding to issue 50 billion won worth of 1.5-year bonds and 70 billion won worth of two-year bonds, which didn't receive any subscription orders. State-run Korea Development Bank, an underwriter, purchased 35 billion won worth of each 1.5-year and two-year bond. 

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