Korea's Lotte Chem likely to raise $745 mn via rights offering

South Korea’s Lotte Chemical Corp. is poised to decide to raise more than 1 trillion won ($745.4 million) of capital at its board meeting this week. Rights offering is one of the major options it will take, according to investment banking sources on Nov. 17.

“Since the chemical firm decided to buy Korean battery material maker Iljin Materials Co. in September, IB firms have suggested multiple strategies to raise capital such as rights offering, bond issuance and corporate loans,” sources said.      

Lotte Chemical said in September it will purchase a 53.3% stake in Iljin Materials, the copper foil producer that made up 13% of the global market last year, for 2.7 trillion won. The petrochemical unit of Korea’s No. 5 conglomerate Lotte Group planned to fund the deal with its own capital of 1 trillion won and external financing of 1.7 trillion won.     

Lotte Chemical’s cashable assets amounted to 2.2 trillion won as of end-September. It had an operating loss of 423.9 billion won in the third quarter on a consolidated basis amid the global petrochemical market’s downturn.     

The chemical firm’s financial condition has deteriorated with its loan to affiliate Lotte Engineering & Construction Co. Lotte Chemical provided a loan of 500 billion won in October and is planning to additionally inject 87.6 billion won, participating it the construction affiliate’s 200 billion won of rights offering this month.

Accordingly, Lotte Chemical’s net debt soared from negative 66.5 billion won as of end-2021, meaning it had more cash of the amount than it owed at the time, to positive 2.2 trillion won as of end-September.

Korea’s NICE Investors Service maintained Lotte Chemical’s credit ratings at AA+, while downgrading the outlook from “stable” to “negative” on Nov. 17. Two other rating firms, Korea Investors Service and Korea Ratings have also lowered the outlook from “AA+/stable” to “AA+/negative” citing worsening profitability and costs for the acquisition of Iljin Materials.

The option of rights offering is garnering attention in terms of Lotte Group affiliates’ participation. Lotte Chemical’s largest shareholder is Lotte Corp. owning a 25.6% stake, followed by Lotte Property & Development Co. with 20% and Japan-headquartered Lotte Holdings Co. with 9.3%.

Write to Seok-Cheol Choi and Jun-Ho Cha at dolsoi@hankyung.com
Jihyun Kim edited this article.