Kumho Petrochemical to graduate from debt workout program

By Kim Yoo-chul

YEOSU, South Jeolla Province — Kumho Petrochemical is hoping to leave its debt workout program by the end of this year.

“Our top priority for this year is to put our business back on a normal track. That means graduating from the workout program set by creditors by the end of this year,” the firm’s Chairman Park Chan-koo said in a news conference held in Yeosu, Wednesday.

Park was on the sidelines in a show of rare participation to open a second local facility to mainly produce high cis polybutadiene rubbers or HBRs.

The company is the de facto holding company of Korea’s airline-focused conglomerate Kumho-Asiana Group.

Since early last year, the nation’s top-tier petrochemical firm has been under a creditor-led debt workout program alongside Kumho Industrial and Kumho Tire after the group’s heavy liquidity woes.

“As part of a consistent move, we will sell all stakes of Kumho Tire owned by us from July, to help strengthen financial soundness,” the chairman said, adding he owns some one million Kumho Tire shares.

When asked about this year’s business outlook, the chairman said he expects to report better earnings for 2011 than last year thanks to the tightening global rubber market.

Park declined to give further financial details. Kumho Petrochemical reported a 364.5 billion won operating profit last year and sales of 3.89 trillion won.

Kium Securities, a local brokerage, projects its operating and net profit will exceed over 1 trillion won this year as healthy car and tire demand will lift the demand for synthetic rubbers.

Based on the “financial soundness priority,” it’s not planning to construct another manufacturing facility abroad. But Kumho is mulling the possibility to form a joint venture to hedge investment risk and to bolster its international profile in its key businesses, Park said.

“There is more room for shares of Kumho Petrochemical to rise. But that’s depends on steady business momentum,” according to Park.

The company doesn’t have any imminent plans to change its corporate identity (CI) or to merge other affiliates as they are secondary issues.

Lacking the funds to honor its commitment, Kumho-Asiana lost control of Daewoo.

It had to restructure the debt of its subsidiaries, and cut pay and benefits at all members of the conglomerate. Kumho affiliates are continuing to sell off assets to raise cash for the group.

Rubber boom

The opening of its second local plant comes after rubber prices continue to rise due to strong demand from China and India and a limited global supply.

A senior company executive said the latest facility is equipped to produce 120,000 tons of HBRs on an annual basis, raising production including that from the first facility to 703,000 tons a year.

The new factory has drawn 170 billion won in investment for the three years from 2008 and is the first in 31 years since Kumho completed its first synthetic rubber factory in 1980.

“Kumho is aiming for 10.4 percent of the global SBR and BR markets — types of synthetic rubber — by boosting production. That market share would be enough to lead its rivals,” said Chang Kab-jong, vice president of Kumho’s Yeosu Synthetic Rubber Plant I & II, in a background briefing.

Chang said the demand for synthetic rubber will see explosive growth as the material is receiving more attention as an alternative to natural rubber, whose price is rising.

The demand for personal vehicles in China has seen rubber prices hitting record levels due to a tight supply.

The demand for tires there is also healthy. Vehicle owners replaced about 100 million tires in 2009, which represented about 11 percent of global sales.

As well as the demand from China, the rise in crude oil prices, which reached $91 a barrel in late December on signs of a recovery in the U.S. economy, has also impacted rubber prices.

“The new line will focus on increasing production yields,” according to Chang, adding it will inject more resources to expand the capacity outputs.

Established in 1970, Kumho Petrochemical mainly produces synthetic rubber, resins, rubber chemicals and electronics materials. It is the world’s fourth largest producer of synthetic rubber.

Kumho is aiming to reap 20 trillion won in sales by 2020.