LOTTE CHEMICAL Decides to Provide 1.6 Trillion Won Joint Guarantee for Newly Established Entity via Spin-off - Temporary Risk Before Merger
LOTTE CHEMICAL decided to provide a joint and several debt guarantee of 1.6 trillion KRW for its newly established affiliate Lotte Daesan Petrochemical, which was created through a physical spin-off of the Daesan plant division. This guarantee covers part of the existing debt assumed by the new entity.
The guarantee amount of 1.6 trillion KRW represents 9.08% of the company's equity (17.628 trillion KRW). The guarantee period runs from June 1, 2026, to August 31, 2026, after which the joint liability is expected to be resolved upon the completion of the merger with HD Hyundai Chemical.
Lotte Daesan Petrochemical has a weak financial structure with total assets of 1.939 trillion KRW, total liabilities of 1.936 trillion KRW, and equity of only 2.85 billion KRW, along with a net loss of 414.4 billion KRW, posing a contingent liability risk.
The company's total outstanding debt guarantees amount to 8.256 trillion KRW, primarily for affiliates. Investors should monitor potential financial burdens from these large contingent liabilities.
[AI Summary]This debt guarantee is a procedural step from the spin-off and will be resolved upon merger, but the weak financials of the new entity create temporary risk. While direct impact on shareholder value is limited, the large contingent liabilities may negatively affect investor sentiment.