HD Hyundai, Lotte launch merged petrochemical firm in industry's first restructuring deal

HD Hyundai Chemical and Lotte Daesan Petrochemical have merged to form the first new entity to emerge from the government-led restructuring of South Korea's petrochemical industry.

HD Hyundai Chemical absorbed Lotte Daesan Petrochemical and relaunched Tuesday under the new name H&L Advanced, industry sources said. Lotte Chemical had earlier spun off its Daesan operations through a physical division to establish Lotte Daesan Petrochemical in preparation for the merger.

HD Hyundai Oilbank and Lotte Chemical each hold a 50 percent stake in H&L Advanced. Previously, HD Hyundai Oilbank held 60 percent of HD Hyundai Chemical and Lotte Chemical held 40 percent. The two companies are also pursuing an additional capital injection of 1.2 trillion won ($874 million).

The inaugural co-CEOs are expected to be named at a board meeting in the coming days. Lotte Chemical is understood to have designated Cheon Yang-sik, the former head of Lotte Daesan Petrochemical, as its nominee for co-CEO.

Under the restructuring plan the two companies submitted to the government, H&L Advanced will suspend operations at Lotte Chemical's Daesan naphtha cracking center, which has a capacity of 1 million tons, for three years. That accounts for 30 to 40 percent of the government's overall reduction target of 2.7 million to 3.7 million tons set last year.

After that, the two companies plan to further cut low-margin commodity facilities before reshaping their business portfolio around higher-value specialty products.

Following the launch of H&L Advanced, a second restructuring plan — under which Yeocheon NCC will shut down its No. 2 and No. 3 plants in Yeosu and integrate the No. 1 plant with Lotte Chemical — has also recently received government approval.

However, subsequent restructuring efforts in the Yeosu industrial complex, including the establishment of a joint venture between LG Chem and GS Caltex, as well as a separate reorganization in Ulsan being pursued by SK Geo Centric, Korea Petro Chemical IND and S-Oil, have yet to gain momentum. Those companies submitted their plans to the government early this year but have not reached concrete agreements.