South Korea approves its first petrochemical restructured deal as glut of supply weighs

The South Korean industry ministry announced on Wednesday that it had 'approved' the first petrochemical sector restructuring project in the country. It offered a package of support worth over 2 trillion won ($1,39 billion) for companies to help them weather a prolonged downturn.

The ministry has approved the plan that HD Hyundai Oilbank and Lotte Chemical, along with their joint venture HD Hyundai Chemical, submitted to merge operations at Daesan Industrial Complex. This is the first approval in a roadmap for petrochemical reorganization announced?in August of last year.

According to the plan, Lotte Chemical’s Daesan will be spun off and merged into HD Hyundai Chemical in order to create an integrated company.

HD?Hyundai Oilbank will inject 600 billion won each into the joint-venture, for a total capital increase of 1,2 trillion won. The current 60-40 split of HD 'Hyundai chemical will be changed to 50-50.

Lotte Chemical’s Daesan Naphtha Cracking Centre (NCC), with a capacity of 1.1 millions metric tons, will cease operations for three year as part of the restructuring. This will help ease an industry-wide supply oversupply.

South Korea is the largest importer of naphtha - an oil product which is broken down into chemicals that are used for plastics in automobiles, electronics and clothing. The planned capacity reductions could have an impact on global oil markets.

The package of government support includes tax breaks, simplified regulatory approvals and up to?2 trillion won worth of financial assistance by creditor -banks. It also includes lower utility costs, estimated at?115 billion won, and a?26 billion win research & development fund.

The ministry announced that it would push ahead with further restructuring projects at petrochemical facilities. (1 dollar = 1,443.5300 won). (Reporting and editing by Emelia Sithole Matarise).

(source: Reuters)