Financial support plan for Yeocheon NCC due this month, total seen exceeding W2tr

A financial support plan for the petrochemical industry's second major restructuring project — centered on Yeocheon NCC, South Korea's largest ethylene production complex — is expected to take shape by the end of this month. Creditor banks have entered final-stage talks over the size and structure of the package, and industry observers believe the total will exceed the 2 trillion won ($1.32 billion) committed to the earlier Daesan project, given the scale of the facilities involved and Yeocheon NCC's strained finances. If subsequent procedures, including a creditor vote, proceed smoothly, the final support plan could be confirmed as early as August.

Korea Development Bank and other creditor institutions completed their due diligence at the end of last month and are now discussing the terms of the support package, financial industry sources said Thursday.

Creditors had originally planned to finish due diligence by the end of May and move quickly to announce a support plan. The process took longer than expected, however, as the review involved four companies — Yeocheon NCC, Lotte Chemical, Hanwha Solutions and DL Chemical — requiring more time than anticipated to assess each firm's financial condition, evaluate the viability of normalization, examine the effectiveness of the restructuring and reconcile competing interests among the parties.

The second restructuring project centers on spinning off the naphtha cracking center at Lotte Chemical's Yeosu factory and merging it with Yeocheon NCC, a joint venture between Hanwha Solutions and DL Chemical. It marks the first structural consolidation within the Yeosu industrial complex, the country's largest petrochemical cluster, and the newly formed entity will be jointly controlled by Lotte Chemical, Hanwha Solutions and DL Chemical.

During due diligence, creditors are understood to have examined the new integrated entity's need for fresh capital as well as demand for maturity extensions and repayment deferrals on existing debt. Based on those findings, they are now discussing the specific form and scale of support, which could include new capital injections, debt restructuring and conversion to perpetual bonds.

Industry officials expect the support package to exceed that of the first Daesan project. The combined ethylene production capacity of Yeocheon NCC and Lotte Chemical's Yeosu naphtha cracking center stands at 3.51 million tons, compared with 1.95 million tons across the two Daesan companies, and the projected capacity reduction from facility adjustments — 1.4 million tons — also surpasses the Daesan figure of 1.1 million tons. Yeocheon NCC's financial position has also deteriorated sharply, with the company posting operating losses for 18 consecutive quarters since the fourth quarter of 2021 and accumulating more than 1 trillion won in losses.

Given the scale of the facilities targeted for restructuring and Yeocheon NCC's already depleted financial reserves, the industry broadly agrees that the support will need to go beyond debt deferrals to include large-scale capital injections and perpetual bond conversions. That view reinforces expectations that the total financial support will surpass the 2 trillion won committed to the Daesan project.

Creditor institutions involved in the first Daesan restructuring project earlier resolved to defer existing debt repayments, supply up to 1 trillion won in new funds and convert up to 1 trillion won in debt into perpetual bonds.

Once a final financial support plan for the four companies is drawn up, creditors will convene to share the details, hold further discussions on implementation specifics such as each institution's share of the burden, and then put the plan to an internal approval vote at each institution. Confirmation as early as August has been raised as a possibility.

"Internal discussions are ongoing, focused on the scale of the funding, and the financial support plan is on track to be released at the end of July," said a source familiar with the creditor group's deliberations. "The support will be allocated in proportion to each creditor's bond holdings, as was the case with Daesan."

Meanwhile, financial support for the Daesan project, finalized in March, is proceeding smoothly. The launch of the integrated HD Hyundai Chemical on Sept. 1 has been confirmed, with only a few remaining procedural steps related to the Korea Fair Trade Commission's merger review still outstanding.

"Both companies are receiving financial support without any major issues," an industry official said. "New capital injections will be carried out in line with actual investment decisions, while the perpetual bond conversions will proceed in stages after the integrated entity launches and the final amounts are determined."

The third restructuring project has yet to take concrete shape due to disagreements among the companies involved. The Middle East war has also played a significant role, pushing the stabilization of crude oil supply and naphtha supply chains to the top of the industry's agenda. Petrochemical industry officials expect discussions at the individual complex level to advance in the second half of the year.

Financial authorities have said they will provide systematic and prompt support once companies submit and receive approval for restructuring plans and formally apply for financial assistance. "Once companies put forward their self-rescue plans, we will discuss them in line with the financial support process," a Financial Services Commission official said.