Yeocheon NCC Avoids Default Crisis but Industry Spread Possible.. Government Follow-up Measures Expected to Accelerate

[Financial News]  


DL, one of the two major joint ventures of Yeocheon NCC within the Yeosu National Industrial Complex, announced its intention to provide financial support, allowing Yeocheon NCC to avoid an immediate default crisis. However, the fact that Yeocheon NCC, the third largest in the industry (based on ethylene production capacity), was on the brink of default is heightening the sense of crisis in the petrochemical industry. Most petrochemical companies have accumulated deficits over the years, leading to analyses that a second and third Yeocheon NCC incident may follow. In response, the government is accelerating the announcement of restructuring support measures for the petrochemical industry. 
DL Chemical held an emergency board meeting on the 11th and approved a capital increase of approximately 200 billion won. Subsequently, DL Corporation also held a board meeting and approved participation in a capital increase of 177.8 billion won for DL Chemical. DL stated, "As the major shareholder of Yeocheon NCC, we plan to practice responsible management and do our best to properly normalize and secure the competitiveness of Yeocheon NCC."
■ Following Hanwha, DL Also Decides to Provide Financial Support 
Yeocheon NCC, established as a joint venture between Hanwha Group and DL Group, recorded net losses of 347.7 billion won in 2022, 240.2 billion won in 2023, and 236 billion won in 2024. Despite the two groups contributing 100 billion won each through shareholder consultations in March this year, additional support was needed. It was reported that if funds were not secured by the 21st, a default (failure to meet debt obligations) could occur.
While Hanwha Group, which expressed its intention to provide additional support, DL Group was initially negative but decided on financial support at the board meeting. In this regard, Hanwha is returning to the public corporate bond market after seven months. The market views this as market-based fundraising for Yeocheon NCC's emergency financial support at the group level. According to the investment banking (IB) industry, Hanwha plans to conduct demand forecasting on September 1st to raise a total of 150 billion won in 2, 3, and 5-year bonds in the public corporate bond market.
The immediate crisis has been averted, but the industry fears that Yeocheon NCC is just the beginning and that the financial crisis will spread to other companies. In fact, the Daesan Petrochemical Complex in Seosan, Chungnam, which has the second-largest petrochemical production capacity in Korea, is also experiencing deepening stagnation similar to Yeosu. The operating rate of small and medium-sized enterprises in this area has fallen to the 60% range, and employment has reportedly decreased by 20-30% compared to the previous year.
In the Daesan complex, Lotte Chemical and HD Hyundai Oilbank have been unable to find a point of agreement for months regarding the integration of naphtha cracking facilities (NCC). Differences in opinions continue over the responsibility-sharing plan based on equity structure during the process of reducing duplicate facilities and personnel. Currently, the two companies are negotiating a plan to integrate the Daesan NCC facilities operated by Lotte Chemical (annual production of 1.1 million tons) and HD Hyundai Chemical (annual production of 850,000 tons) into a single corporation.
LG Chem has also embarked on high-intensity restructuring in the petrochemical sector. Following the decision on the 7th to sell the aesthetic business within the Life Sciences Division to VIG Partners for 200 billion won, it has also begun the process of selling the Bisphenol A (BPA) business unit.
■ Industry Experts Call for Rapid Government Response 
The industry agrees that it is difficult to overcome the recession with only such corporate self-rescue measures. Lotte Chemical recently lamented in its second-quarter earnings conference call, "The level of optimization that can be carried out at the individual company stage has progressed to some extent, but compared to past experiences, the depth of the downturn is deep, so it is not showing momentum for further performance improvement."
Experts also emphasized the need for the government to prepare swift and proactive support measures along with corporate restructuring efforts. Lee Deok-hwan, an emeritus professor of chemistry at Sogang University, said, "The Yeocheon NCC default crisis is just the beginning, and there is a high possibility that the situation will spread in all directions," stressing that "the government must send a clear message that it will continue to nurture the chemical industry." He suggested key tasks for government support, including expressing the will to nurture the chemical industry, easing institutional barriers to corporate restructuring, and preparing financial support if necessary. He particularly emphasized that for large companies, institutional improvement should take precedence over subsidies, citing the relaxation of the Fair Trade Act and environmental regulations as examples.
Yoo Seung-hoon, a professor of energy policy at Seoul National University of Science and Technology, said, "Not only Yeosu but also major petrochemical clusters such as Daesan, Seosan, and Ulsan are facing severe management difficulties, and without government intervention, bankruptcy is inevitable," proposing the formation of a pan-government task force (TF) led by the Prime Minister's Office and financial support from the Ministry of Strategy and Finance as restructuring measures.
The announcement of government restructuring support measures is expected to accelerate due to the Yeocheon NCC incident. The government planned to announce follow-up measures in June this year after announcing the 'Petrochemical Industry Competitiveness Enhancement Plan' in December last year, but it was postponed due to the launch of the new government. A representative of the Korea Chemical Industry Association said, "As the Yeocheon NCC default crisis becomes visible, concerns about a 'domino shutdown' are growing," adding, "I understand that the government is also hastening the announcement of follow-up measures." padet80@fnnews.com Park Shin-young, Lee Dong-hyuk, Kim Hyun-jung, Kim Kyung-ah reporters