Saudi Aramco-backed HD Hyundai Oilbank Co. will acquire a 50% stake in money-losing HD Hyundai Cosmo Petrochemical Co. from Japanese petrochemical giant Cosmo Oil Co. for 145 billion won ($104.3 million) to fully control the petrochemical joint venture to stop the bleeding.
According to the Financial Supervisory Service (FSS) on Friday, HD Hyundai Oilbank, a subsidiary of South Korean shipbuilding and machinery conglomerate HD Hyundai Co., will buy a 50% stake in HD Hyundai Cosmo from Cosmo Oil for 145 billion won on Nov. 1.
Following the transaction, the Korean oil refiner will control 100% of the 50:50 petrochemical JV set up by HD Hyundai Oilbank and Cosmo Oil in 2009.
On Dec. 30, HD Hyundai Oilbank will merge with HD Hyundai Cosmo in a 1 to 0 merger ratio and dissolve the JV.
The Korean oil refiner said it has decided to merge with HD Hyundai Cosmo to improve operational efficiency and cut costs after the petrochemical JV suffered from a mounting loss of over 300 billion won over the recent four years.
HD Hyundai Cosmo Petrochemical logo (Courtesy of HD Hyundai)
After the planned merger, HD Hyundai Oilbank will restructure its two petrochemical businesses – HD Hyundai Chemical Co. and HD Hyundai Cosmo. HD Hyundai Chemical is also a JV set up between HD Hyundai Oilbank and Lotte Chemical Corp. in a 60:40 ratio.
CHEAP CHINESE PETROCHEM PRODUCTS TAKE A HEAVY TOLL
HD Hyundai Oilbank and Cosmo Oil jointly injected 600 billion won to launch the 50:50 petrochemical JV.
In 2010, HD Hyundai Cosmo acquired HD Hyundai Oilbank’s petrochemical unit that produces benzene, toluene and xylene, or BTX, which is a base material used to make plastics like polyethylene terephthalate (PET), synthetic resin and polyester fibers.
The JV enjoyed robust business for a while. In 2018, it reaped 168.1 billion won in operating profit on sales of 2.99 trillion won.
But it dipped into the red in 2020 with an operating loss of 83.3 billion won and has been burning cash since then.
Its cumulative operating loss ballooned to 318.3 billion won over four years, while its deficit stood at 268.5 billion won as of the end of 2023.
Industry experts blamed a plunge in BTX prices due to its oversupply from China, which has taken a heavy toll on other Korean petrochemical companies, too.
Hyundai Oilbank’s refinery in Daesan, South Korea
Korean chemicals giant LG Chem Ltd. has also restructured its loss-making petrochemical business in recent years amid the prolonged slump in the global petrochemical industry following Chinese companies’ rush to build and expand oil refining complexes integrated with petrochemical production lines.
HD HYUNDAI OILBANK’S FINANCIAL HEALTH DETERIORATES
The streamlining of HD Hyundai Cosmo also comes in tandem with the deteriorating financial health of HD Hyundai Oilbank.
Without any sign of recovery in the oil refinery market, HD Hyundai Oilbank’s debt ratio hit 229.5% as of end-June, up 24.1 percentage points from the end of last year. The debt ratio has been on a steady rise since the end of 2019 when it reached 136.3%.
The company’s total borrowings also added about 500 billion won from the end of last year to 8.22 trillion won.
To improve its financial soundness, HD Hyundai Oilbank in October issued perpetual bonds to raise 250 billion won.
A perpetual bond is a hybrid bond that can be recorded as an equity in a company’s financial statement.
By Ik-Hwan Kim
lovepen@hankyung.com
Sookyung Seo edited this article.
