KUALA LUMPUR (Dec 16): Lotte Chemical Titan Holding Bhd said it had obtained its shareholders’ approval to award engineering, procurement and construction (EPC) works for the downstream plants and complex facilities of the LOTTE Chemical Indonesia New Ethylene (LINE) project to Korea-based related party LOTTE Engineering & Construction Co Ltd (LEC).
In a Thursday (Dec 16) statement, the company said the proposed EPC works to be undertaken by LEC is estimated to be at US$1.65 billion (equivalent to RM6.8 billion). Lotte Chemical Titan added that it had sought minority shareholders’ approval through an extraordinary general meeting (EGM) for the proposed award to LEC as it is within the purview of related party transactions.
The company said it announced earlier that it is commencing construction of the large-scale expansion of its LINE project worth an investment value of about US$3.95 billion (RM17 billion) in Merak, Cilegon, Banten Province, Indonesia.
“The LINE project, which is a joint venture (JV) with its parent company, LOTTE Chemical Corporation, will serve as the key expansion drive for the company with the aim to solidify its position as a top-tier petrochemical company in the Southeast Asia region upon its completion,” noted Lotte Chemical Titan.
The company added that the LINE project, which comprises the development of an integrated petrochemical facility with various downstream petrochemical plants, is expected to commence construction in 2022 and be completed in 2025.
The LINE project will also help the company integrate its three existing standalone polyethylene plans which it operates in Indonesia while boosting its production capacity by 65% to 5,878 kilometric tonnes per annum (KTA) from 3,568 KTA currently, the statement revealed.
“The project financing will be a 60:40 debt-equity structure arrangement and the company plans to utilise its internal funds for the equity financing on the 51% stake we own in the JV. Our current strong net cash position in excess of RM5 billion as at Sept 30, 2021, would be sufficient to provide for the equity funding for our portion, amounting to approximately US$806 million or equivalent to RM3.3 billion,” Lotte Chemical Titan’s president and CEO Park Hyun Chul said in the statement.
“The company will not need to raise any form of additional equity funding from our shareholders. The debt portion for the development cost would be in the form of project financing, which is expected to be self-sustainable by the LINE project post-completion.
“With the project financing, our company will subsequently have an estimated gearing ratio of 0.84 times, from the current net cash position. The project will provide incremental value creation for our shareholders as they could benefit from the enlarged production capacity base of our company,” Park added.
The statement wrote that the company had undertaken a strategic review when the Covid-19 pandemic struck in 2020, to determine the right timing to begin construction of the RM6.8 billion LINE project in Indonesia and had decided that the current timing is right amid improvements in the global economy and overall market conditions.
“We are cautiously optimistic amidst some balancing market factors weighing in. As the sector moves in tandem with economic growth, it would likely be supported by the post-pandemic economic recovery expected for the [remainder] of the year and continuing in 2022.
“However, there are new domestic capacities expected to come online next year, which may have some downward pressure on the polymer average selling prices.
“The positive outlook would be very much dependent on the continuation and effectiveness of vaccination as well as the pace of economic re-opening, globally and domestically. As such, we expect certain elements of volatility to remain for the petrochemical sector moving ahead,” Park said on the outlook for the petrochemicals market.
Shares of Lotte Chemical Titan traded two sen or 0.89% higher at RM2.27 before the midday break, giving the chemicals group a market capitalisation of RM5.25 billion.