Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Lotte grapples with rumors about moratorium
A traffic light is red in front of Lotte World Tower in Seoul in this 2016 photo. Korea Times file
By Park Jae-hyuk
Fears grow over chemical firms financing construction affiliates
Lotte Group has been struggling to reassure investors amid rumors over the weekend that the conglomerate will declare a moratorium next month due to a liquidity crisis caused by its unprofitable investments and financial support for its cash-strapped construction unit.
The rumors come as Lotte E&C has managed to lower its debt ratio with the money it borrowed from its parent company, Lotte Chemical, and the group’s other affiliates in 2022.
“It is groundless that Lotte Group is facing a liquidity crisis,” Lotte Corp., Lotte Chemical and Lotte Shopping said in their regulatory filings on Monday as investors dumped their shares in the affiliates of the nation’s sixth-largest business group.
Lotte has sought a group-wide restructuring since it entered an emergency mode in August.
In particular, Lotte Chemical’s executives agreed earlier this month to return part of their wages to counteract the worsening petrochemical business environment, indicating that it could be difficult for the company to keep supporting cash-strapped Lotte E&C.
As of the end of the first half, the construction firm’s debt was still above 5 trillion won ($3.6 billion).
“Lotte will likely face difficulties for a while in its flagship businesses, such as retail and chemical,” IBK Securities analyst Nam Sung-hyun said.
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There also exist concerns about other business groups that tasked their chemical units with financing their struggling construction affiliates amid the deteriorating profitability in the petrochemical sector in recent years.
Kolon Industries, for example, said on Nov. 12 that the petrochemical firm bought one of the Sporex sports center buildings and its site in Seoul’s Seocho District for 430 billion won from Kolon Global.
The acquisition was interpreted as an apparent attempt to support the construction firm.
As of the end of the first half, Kolon Global’s debt ratio surpassed 500 percent.
Isu Chemical said on Nov. 8 that it invested 70 billion won in Isu E&C to improve the financial soundness of its wholly-owned construction subsidiary.
In 2018, the chemical firm sold its headquarters in Seoul to inject 60 billion won into the construction firm.
In 2021, Isu Chemical gave an additional 70 billion won to Isu E&C.