Lotte to liquidate rubber JV in Malaysia, sell overseas assets for $1 bn

South Korea’s No. 2 petrochemical manufacturer Lotte Chemical Corp. plans to liquidate its rubber joint venture in Malaysia to scale back its basic chemicals business while selling stakes in its overseas units to raise nearly $1 billion to cut debt.

Lotte Chemical said on Friday it has decided to liquidate Lotte Ube Synthetic Rubber Sdn. Bhd. (LUSR) as the 50-50 JV with Japan’s Ube Elastomer Co. based in Johor is a non-core business with low profits.

LUSR, which produces 50,000 tons of polybutadiene rubber a year, has been in the red since the plant launched commercial operation in 2015, except for 2021. 

“It is a significant decision as liquidation will only allow the company to collect scrap metal values,” said an industry source in Seoul. “It shows the company’s strong determination to exit the business with limited growth.”

Lotte Chemical aims to halve its basic chemicals business by 2030 amid growing competition from Chinese rivals in order to upgrade its portfolios and focus on new growth sectors.

The Korean company, which is expected to report a third straight year of losses since 2022, has been trying to dump unproductive assets while enhancing its financial conditions.

“The liquidation of LUSR is part of measures to improve our financial stability and change business portfolios,” said Lotte Chemical CEO Lee Hun Ki in a statement.

The petrochemical unit of Korea’s sixth-largest conglomerate Lotte Group already sold its entire stake in JVs with Chinese partners last year. It is also looking to sell its units in Pakistan and Malaysia.

TO SELL STAKE IN US, INDONESIAN UNITS

Separately, Lotte Chemical plans to raise nearly $1 billion by selling stakes in its overseas units.

The company said on Thursday it will sell a 40% stake in Lotte Chemical Louisiana LLC, its ethylene glycol production unit in the US, for 660 billion won ($432 million) this year.

Lotte Chemical also plans to raise some 700 billion won by selling a stake in PT Lotte Chemical Indonesia, which is scheduled to launch commercial operation of an ethylene plant with a 1 million ton annual capacity next year.

Lotte Chemical’s debt to equity ratio rose to 75.3% on a consolidated basis as of the end of the first half from 55.1% at the end of 2023.

It is expected to further unload ineffective assets, industry sources said, as it has been accelerating its corporate restructuring since Lee took office in April 2023.

“We must take bold steps to dispose of assets with no strategic importance and improve operational efficiency,” he was quoted as saying by industry sources in Seoul.

On the other hand, Lotte Chemical is expanding businesses such as acrylonitrile butadiene styrene, polycarbonates and other materials widely used in laptops, smartphones, automobiles and medical devices as they are more competitive than those of their Chinese rivals.

The company invested 300 billion won in Lotte Engineering Plastics, its subsidiary that manufactures materials for vehicles and other products.

Write to Hyung-Kyu Kim and Hyeon-woo Oh at khk@hankyung.com
 
Jongwoo Cheon edited this article.