Lotte Chemical fails in second attempt to sell Pakistani unit

Lotte Chemical failed in another attempt to sell a non-core subsidiary in Pakistan, causing concerns over plans to enhance its competitiveness and support the group’s construction arm, which is rumored to be facing a liquidity crisis, according to industry officials, Monday.

Last Friday, Pakistan’s Lucky Core Industries announced its wholly owned subsidiary, Lucky Core Ventures (LCV), terminated a share purchase agreement (SPA) signed with Lotte Chemical last January to acquire a 75 percent stake in Lotte Chemical Pakistan Limited (LCPL).

“The conditions required for completion could not be met within the time stipulated in the SPA and accordingly LCV has decided not to proceed with the transaction,” Lucky Core said in its disclosure on the Pakistan Stock Exchange. “Consequently, LCV will be withdrawing the notice of public announcement of intention.”

Lotte Chemical’s agreement with Lucky Core was signed a few days after another Pakistan-based petrochemical firm, Novatex, withdrew its offer to acquire a 75 percent stake in LCPL last January. The Pakistani firm explained at that time that the parties were unable to agree on the terms of the transaction.

A Lotte Chemical spokesman declined to comment on the issue, saying the company was figuring out what happened.

Last January when the Korean firm signed the deal worth around 192.4 billion won ($146 million), it planned to use the funds secured from the sale to strengthen the value-added properties of existing petrochemical products, expand its specialty business and enter the eco-friendly material sector.

“Despite the challenges of global economic uncertainties, LCPL recorded sales of 47.1 billion won and operating profit of 48.8 billion won in 2021,” Lotte Chemical said at that time. “However, it has been deemed to be not in line with Lotte Chemical’s medium- to long-term vision of expanding its high value-added specialty business, leading to the decision to sell off the subsidiary.”

Earlier this month, the company also reportedly postponed planned for February to issue corporate bonds worth up to 400 billion won, as concerns have grown over the financial soundness of Lotte E&C and other construction firms after Taeyoung E&C filed for debt restructuring. Lotte Chemical is the largest shareholder of Lotte E&C with a 44 percent stake.

Although Lotte E&C dismissed concerns over its debt, the construction firm has relied heavily on Lotte Chemical and the business group’s other affiliates.

In 2022, Lotte Chemical lent 580 billion won to Lotte E&C, as financial risks stemmed from worsening investor sentiment in the aftermath of a default in project financing for the construction of the Legoland Korea Resort in Gangwon Province. The massive loan even prompted domestic credit rating agencies to lower Lotte Chemical’s rating at that time.