Lotte’s Towering Ambition

Group is out to expand petrochemical sector to 40 tln won of group’s 200 tln won total sales in 2018

Honam Petrochemical Co. won the $3 billion Export Tower in recognition of its excellent export record this year as a key player in the country’s petrochemical industry.
President Chong Bum-shick said in his acceptance speech that the petrochemical industry and the steel industry are key basic industries in Korea, supplying raw materials for cars and electronic products. In this sense, the company winning the export tower and the gold medal is encouragement to those who work for Honam Petrochemical and the industry.
The company did well both last year and this year so far, although other companies suffered from various setbacks. The company’s strategy to explore overseas markets and expand the production of high value-added products paid off, along with efforts to cut energy costs for the company, recording its best performance record in 2009. This year the company successfully executed a 1.5 trillion won acquisition of Titan Chemical in Malaysia, which will boost the Lotte Group’s total sales revenue for this year.
During an interview with local media, he singled out the takeover of Titan Chemical, the biggest event for the group, not only because of the money involved, but also because of the speed with which the deal was consummated. He said on Nov. 9 they were able to take over the entire $950 million worth of shares, or 1.1 trillion won, under the agreement signed in July. The rest of the outstanding shares will be bought through the stock market. The takeover of the shares was announced in Kuala Lumpur officially and the local stock market also put the notice on its board.
Chung said huge significance is attached to the acquisition of Titan for the group. Honam Petrochemical’s consolidated financial statements would show 14 trillion won in sales with its ethylene output reaching 2.47 million tons, the second largest in Asia; 1.8 billion tons of polyethylene, the largest in Asia for a single company; and 1.38 million tons of polypropylene, the second largest in Asia.
Chung said the huge deal was consummated four months since the signing of the MOU in July; the final payment was made in November. He said people said Lotte Group takes a long time to carry out its decisions, but they were wrong as can be seen with the Titan deal.
In addition, Honam Petrochemical has completed five to six large M&As in the past couple of years and the company still feels hungry for more M&As, the CEO said.
Since its start in 1976, the company helped to build the petrochemical industry in Korea through the development of technologies and is in the process of solidifying its position as a leading integrated petrochemical maker.
As of June this year the company’s capital stood at 159.3 billion won with assets of 6.846 trillion won and a debt ratio of 48 percent. The company’s strategy to expand its operations overseas has been a great success with the takeover of Titan Chemical in Malaysia and the continuous expansion of the existing production facilities and business territories to secure cost competitiveness.
Honam Petrochemical has become a global production base from raw materials to products in a so-called diametrical system. The company turns out 2.5 million tons of ethylene, the raw materials for basic chemical products, resins and precision chemical products. The company is the top producer of such key products as high-density polyethylene, polypropylene and monoethylene glycol. The company’s sales last year amounted to 5.9 trillion won including basic oil (14 percent), resins (49 percent), monomer (27 percent), functional resins (6 percent) and precision chemicals (4 percent), among others.
Chung said the most important factors that he considers when selecting M&A targets include scale of economy, so that the target company would continue to be competitive. If the target firm is in the area of basic petrochemicals, the factors for consideration include cost competitiveness and accessibility to market.
Honam Petrochemical’s fast M&As have been so fast and large that the company is being called a “whirlwind” in the industry and it is related to its position within the Lotte Group. The group has been well known for its food and retail business sectors including the Lotte Department Store, one of the largest in Korea, but signs show that the pattern has been changing little by little. Vice Chairman Chung Dong-bin recently confirmed the group’s strategy to expand the petrochemical sector.
Chung said the petrochemical sector already shares 20 percent of the group’s total sales, or 9 trillion won of the 60 trillion won. The sector’s contribution will be rising to 40 trillion won in 2018 of the group’s projected total sales of 200 trillion won. Vice Chairman Shin is leading the expansion of the petrochemical sector believing that the petrochemical industry is a key sector in Korea under the group’s patriotic duty to help the national economy grow further. nw

Honam Petrochemical Joins Hands with Mitsui in PP Catalyst Venture
HPC is stepping on the gas to expand its business portfolios in Korea and abroad
In the latest move, Honam Petrochemical Corporation (HPC) has teamed up with Japan’s Mitsui in a joint venture to build a polypropylene (PP) catalyst plant. HPC said on Oct. 5 the new plant will be built at its third Yeosu plant by 2012 with 20 billion won in capital invested at a ratio of 50:50.
PP catalysts are used to spur reactions in the production of PP items, raw petrochemical products. A few global players, including Mitsui, Germany’s BASF and Basell, have the technology to produce PP catalysts. Mitsui, a global value-added chemical producer, has focused on the research of catalysts, which play essential roles in the chemical industry.
HPC said it will consume half of the 100 tons of PP catalysts the new plant will produce per year. HPC ranks top in Korea and second in Asia with an annual production capacity of 1.4 million btons of PP. An HPC official said the joint venture deal will contribute to stabilizing the supply of PP catalysts and securing the pertinent technology, and it will step up HPC’s competitive edge in such PP projects as Titan Chemicals Corp., a Malaysian company acquired by HPC in July, and another one in Uzbekistan.
The joint venture is expected to serve as a good opportunity for HPC to strengthen its presence as a total-solution provider in the chemical sector.
In a series of M&A activities, HPC acquired Hyundai Chemical Co.’s second industrial complex in 2003, the consolidation of which was completed in 2008; took over KP Chemical in 2004; consolidated Sambak, a long fiber mermoplastics maker, with Sambak LFT and HOWTECH, an EPP maker in 2008.
Last July, HPC agreed on a 1.5 trillion won deal to acquire Titan Chemicals Corp., Malaysia’s biggest chemical producer, and DACC, a composite maker, in August.
In a related development, HPC CEO and President Chong Bum-shick told reporters following a meeting of CEOs in the domestic petrochemical industry at the Shilla Hotel in Seoul on Aug. 19, “We’ll pursue two or three more small and medium-sized M&As.”
Korea’s second-largest ethylene maker said last July it agreed to purchase Malaysia’s biggest petrochemical company, Titan Chemicals Corp., for 1.5 trillion won in a bid to raise the portion of revenues from overseas markets. HPC reached the deal to take over a 37.3 percent stake in Titan from Chao Group and a 35.3 percent holding from Permodalan National Bhd. HPC, a subsidiary of the Lotte Business Group, is Korea’s second largest ethylene producer, while Titan Chemicals is Malaysia’s biggest producer of olefins and polyolefins, used in making plastic parts in appliances and automobiles.
The acquisition is the biggest international M&A deal involving a Korean company so far this year and the deal will make HPC Asia’s second-largest petrochemical producer after Taiwan’s Formosa Petrochemicals by raising its ethylene production from 1.75 million tons to 2.5 million tons. The agreement will provide HPC with an opportunity to strengthen its presence in overseas markets, particularly in Southeast Asia where demand for petrochemicals is on a rapid surge.
Regarding financing his company’s acquisition of Titan Chemicals, Chong said his company will strive to minimize outside borrowing. He said his company was considering ways of securing funding by capitalizing on the cost competitiveness in the Southeast Asian market it will accumulate while operating Titan Chemicals and reinvesting the revenues.
Asked about its possible acquisition of KP Chemical, also a subsidiary of the Lotte Business Group, Chong said there is no change in his company’s plan to consolidate his company and KP Chemical in consideration of market conditions, but the timing for the merger may not be within this year.
HPC has set its sights on becoming Asia’s No. 1 petrochemical company with the goal of posting 40 trillion won in annual sales in 2018. The vision calls for strengthening its presence in Korea and abroad through M&As, expanding its production in China, making inroads into new businesses including bio/water treatment and diversifying its exporting portfolios.
Since its establishment, HPC has devoted itself to developing and localizing superb technology. As a comprehensive petrochemical company, HPC has led the growth of the Korean heavy chemicals industry. In 1992, raw material processing facilities like a naphtha cracking center and aromatic compound plants were added to HPC’s world-class site in the Yeosu Petrochemical Complex to complete its vertical business integration from raw materials to finished products. HPC’s ceaseless development has continued. In 2001, the company increased its production capacity of ethylene to 700,000 tons yearly and built a special chemical plant. nw