Lotte Chemical to Liquidate its Malaysian Rubber JV, Sell Stakes to Cut Debt

Lotte Chemical Corp, South Korea’s second-largest petrochemical manufacturer, announced plans to liquidate its rubber joint venture in Malaysia, Lotte Ube Synthetic Rubber Sdn. Bhd. (LUSR). This restructuring is a part of its ongoing efforts to streamline its business portfolio and reduce debt.

The 50-50 joint venture with Japan’s Ube Elastomer Co. has struggled financially since its commercial operations began in 2015, with the exception of 2021. The company produces 50,000 tons of polybutadiene rubber annually.

Lotte Chemical aims to halve its basic chemicals business by 2030 and focus on new growth sectors, such as specialty chemicals. The company is facing increasing competition from Chinese rivals and has reported losses for the past two years.

“This 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 CEO Lee Hun Ki emphasized the company’s commitment to improving financial stability and transforming its business portfolio. “The liquidation of LUSR is part of measures to improve our financial stability and change business portfolios,” he said in a statement.

To further strengthen its financial position, Lotte Chemical plans to raise nearly $1 billion by selling stakes in its overseas units. The company 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. Additionally, it plans to raise approximately 700 billion won by selling a stake in PT Lotte Chemical Indonesia, which is set to commence commercial operations of a 1 million ton annual capacity ethylene plant next year.

Lotte Chemical’s debt-to-equity ratio increased to 75.3% as of the end of the first half of 2024, up from 55.1% at the end of 2023. Industry sources expect the company to continue its asset disposal strategy to improve its financial health.

“We must take bold steps to dispose of assets with no strategic importance and improve operational efficiency,” said Lee Hun Ki.

While Lotte Chemical is divesting non-core assets, it is also investing in growth areas such as acrylonitrile butadiene styrene, polycarbonates, and other materials used in electronics, automotive, and medical devices. The company has invested 300 billion won in Lotte Engineering Plastics to bolster its position in these high-value markets.

By focusing on these areas, Lotte Chemical aims to differentiate itself from Chinese competitors and capitalize on the growing demand for advanced materials.