Lotte Chemical, LG Chem mull petrochemical selloffs

[Courtesy of Lotte Chemical]

Several South Korean chemical companies are considering divesting their petrochemical businesses as general-purpose petrochemical products decline in profitability.

Lotte Chemical is reportedly seeking potential buyers for Lotte Chemical Titan Holding Bhd (LC Titan), its Malaysian subsidiary, according to industry sources on Wednesday. It is reported that Lotte Chemical intends to sell its entire 74.7 percent stake in LC Titan, which is traded on the Malaysian stock exchange.

Industry sources state that Lotte Chemical has been in contact with multiple investment banks since 2023 to select an advisory firm for the sale. But the sale outlook is currently not optimistic due to significant drops in LC Titan stock prices compared to those around its listing, which is compounded by the company’s losses.

LC Titan was established in 2010 when Lotte Chemical acquired Titan Chemicals Corp., Malaysia‘s largest petrochemical company, and was listed on the local stock market with a market capitalization of about 4 trillion won ($3 billion) in 2017. But it has experienced losses since the second quarter of 2022 and posted an operating loss of 61.2 billion won the following year. LC Titan’s market capitalization was 746.5 billion won as of Wednesday, roughly half of the acquisition price of about 1.5 trillion won.

[Courtesy of LG Chem Ltd.]

Similarly, LG Chem is reportedly seeking to sell part of its stake in the petrochemical business, including its NCC 2 plant in Yeosu on Korea’s southern coast. Sources say that the company is considering spinning off the upstream sector, which produces basic oil products such as ethylene and propylene, as well as forming a joint venture by selling about 49 percent to Kuwait Petroleum Corp. (KPC) by the end of 2024.

These divestment efforts by Lotte Chemical and LG Chem are believed to be in response to declining profitability in general-purpose petrochemical products due to their Chinese rivals’ aggressive sales strategies. McKinsey & Co. Inc. highlighted the need for industry restructuring in the petrochemical sector by divesting non-core assets and business portfolios to enhance competitiveness in a report published in 2023.

But both companies were cautious about commenting on the sell-off. Lotte Chemical stated “a decision is yet to be made” regarding the alleged sale, while LG Chem also mentioned that nothing has been finalized regarding the sale of the petrochemical business.

For its part, Lotte Group’s Lotte Duty Free was selected as the new operator of the DF2 liquor and tobacco sales zone at Gimpo International Airport on Wednesday. With its existing operations in the cosmetics and perfume area, Lotte will now assume control over the entire duty-free business rights at Gimpo International Airport.

The DF2 zone, previously operated by Shilla Duty Free from 2018 for five years, with an annual sales scale of about 41.9 billion won, will now be managed by Lotte for seven years until 2031.