Lotte Chemical breaks promise with shareholders to help construction unit
Lotte E&C CEO reportedly offers to resign
Lotte Chemical’s latest decision to issue new shares worth 1.1 trillion won ($811 million) has come into question as the measure is considered contradictory to the company’s promise earlier this year to increase shareholder returns, according to industry officials, Monday.
The issuance of such a large amount of new shares tends to lower a company’s stock price. Lotte Chemical has already frustrated its shareholders as its worsening financial standing prompted it to retract its promise in March to pay interim dividends.
Last Friday, the petrochemical unit of Lotte Group announced the paid-in capital increase plan, citing its forthcoming acquisition of Iljin Materials and the capital market slowdown stemming from global inflation, interest rate hikes and the supply chain crisis.
The company said it will use 500 billion won for its “operations,” while using the remaining 606 billion won for the takeover of the copper foil manufacturer.
Hi Investment & Securities analyst Jun Yu-jin, however, partially attributed Lotte Chemical’s decision to make the series of measures as intended to finance its cash-strapped construction subsidiary, Lotte E&C. The builder has been rumored to be facing difficulties in repaying its debts for project financing, amid the real estate market slowdown and the interest rate hikes.
Last month, Lotte Chemical lent 500 billion won to Lotte E&C. The builder also sold its newly issued shares worth 200 billion won to its three major shareholders — Lotte Chemical, Lotte Hotel and Lotte Aluminum.
“Due to the announcement of the paid-in capital increase, its stock price will not be able to avoid a largescale adjustment,” Jun said, lowering her target price for Lotte Chemical’s stock to 210,000 won from 290,000 won.
Lotte Chemical dismissed concerns among investors about Lotte E&C’s financial soundness.
“Although it is difficult to disclose its specific financial conditions, Lotte E&C has already resolved most of its risks,” Lotte Chemcial Senior Vice President Kim Yeon-seop told investors and analysts during Monday’s conference call on the paid-in capital increase.
Lotte Chemical Chief Financial Officer Kang Jong-won also said his company does not have any plans to postpone the maturity of the loan it extended to Lotte E&C, adding that the builder will come up with self-rescue measures.
Lotte E&C CEO Ha Suk-joo, however, offered to resign last week in an apparent attempt to take responsibility for causing group-wide financial risks. A successor will be decided by the company’s board of directors.
Even before Lotte Chemical issued its new shares, Korea’s three credit rating agencies lowered their credit outlooks for Lotte Chemical, Lotte Corp. and the group’s other affiliates to “negative” from “stable.”
Since Oct. 18, Lotte E&C raised at least 1.1 trillion won from its affiliates, including Lotte Chemical, Lotte Fine Chemical, Lotte Home Shopping and Hotel Lotte.
In addition, the builder decided last week to borrow 200 billion won from Hana Bank and 150 billion won from Standard Chartered Bank Korea. Lotte Property & Development promised to offer up to 420 billion won in financial support if Lotte E&C fails to repay its debts.