HD Hyundai Oilbank to fully own HD Hyundai Cosmo for $104 mn
Ik-Hwan Kim
Oct 25, 2024 (Gmt+09:00)
Saudi Aramco-backed HD Hyundai Oilbank Co. will acquire a 50% stake in money-losing HD Hyundai Cosmo Petrochemical Co. from Japanese chemical giant Cosmo Oil Co. for 145 billion won ($104.3 million) to gain full control of the petrochemical joint venture to stop the bleeding.
According to South Korea's Financial Supervisory Service (FSS) on Friday, HD Hyundai Oilbank, a subsidiary of local shipbuilding and machinery conglomerate HD Hyundai Co., will buy a 50% stake in HD Hyundai Cosmo from Cosmo Oil for 145 billion won on Nov. 1.
Following the transaction, the Korean oil refiner will control 100% of the 50:50 petrochemical JV set up by HD Hyundai Oilbank and Cosmo Oil back in 2009.
On Dec. 30, HD Hyundai Oilbank will merge with HD Hyundai Cosmo in a 1:0 merger ratio and dissolve the JV.
The Korean oil refiner said it decided to merge with HD Hyundai Cosmo to improve operational efficiency and cut costs after the petrochemical JV suffered from mounting losses of over 300 billion won over the past four years.
HD Hyundai Cosmo Petrochemical logo (Courtesy of HD Hyundai) After the planned merger, HD Hyundai Oilbank will restructure its two petrochemical businesses, HD Hyundai Chemical Co. and HD Hyundai Cosmo. HD Hyundai Chemical is also a JV between HD Hyundai Oilbank and Lotte Chemical Corp. set up in a 60:40 ratio.
CHEAP CHINESE PETROCHEM PRODUCTS TAKE A HEAVY TOLL
HD Hyundai Oilbank and Cosmo Oil together injected 600 billion won to launch the 50:50 petrochemical JV.
In 2010, HD Hyundai Cosmo acquired HD Hyundai Oilbank’s petrochemical unit that produces benzene, toluene and xylene, or BTX, a base material used to make plastics like polyethylene terephthalate (PET), synthetic resins and polyester fibers.
The JV enjoyed robust business for a while. In 2018, it raked in 168.1 billion won in operating profit on sales of 2.99 trillion won.
But in 2020 it dipped into the red with an operating loss of 83.3 billion won and has been burning cash ever since.
Its cumulative operating loss ballooned to 318.3 billion won over four years, while its deficit stood at 268.5 billion won as of the end of 2023.
Industry experts blamed its losses on a plunge in BTX prices due to an oversupply from China, which has taken a heavy toll on other Korean petrochemical companies as well.
Hyundai Oilbank's refinery in Daesan, South Korea Korean chemicals giant LG Chem Ltd. has also restructured its loss-making petrochemical business in recent years amid a prolonged slump in the global petrochemical industry, after Chinese companies rushed to build and expand oil refining complexes integrated with petrochemical production lines.
HD HYUNDAI OILBANK’S FINANCIAL HEALTH DETERIORATES
The streamlining of HD Hyundai Cosmo comes in tandem with the deteriorating financial health of HD Hyundai Oilbank.
With no signs of recovery in the oil refinery market, HD Hyundai Oilbank’s debt ratio hit 229.5% as of end-June, up 24.1 percentage points from the end of last year. Its debt ratio has been steadily rising since the end of 2019, when it reached 136.3%.
The company also added 500 billion won to its total borrowings since the end of last year to reach 8.22 trillion won.
To improve its financial health, HD Hyundai Oilbank in October issued perpetual bonds to raise 250 billion won.
A perpetual bond is a hybrid bond that can be recorded as an equity in a company’s financial statement.