Korean media: South Korean petrochemical companies face a "total collapse" crisis, with 60% of companies showing no intention of reform

Corporate restructuring is often compared to "scraping bones to treat poison," meaning the process is very difficult. If it involves multiple interests, it is even more challenging. Despite this, the South Korean government has decided to once again entrust the already stalled petrochemical industry structure adjustment work to the enterprises themselves. However, due to different environments and survival methods among the petrochemical companies, the path of restructuring will inevitably be full of difficulties.

According to an anonymous overall survey conducted by the JoongAng Daily on 10 major domestic petrochemical companies in South Korea, only 4 companies have listed "restructuring including factory shutdowns" as (the top 1-3) priority self-rescue plans. The companies surveyed include LG Chem, Lotte Chemical, SK Geo Centric, Hanwha Daewoo, Korea Petrochemical, Hanwha Solutions, DL Chemical, GS Caltex, HD Hyundai Chemical, and S-Oil. These companies signed the "Petrochemical Industry Revitalization Promotion Plan" voluntary agreement with the Ministry of Trade, Industry and Energy last month, which includes reducing the annual ethylene production capacity in South Korea by up to 25% (about 3.7 million tons).

Restructuring means factory shutdowns and layoffs. However, the survey found that out of 10 petrochemical companies in South Korea, 6 did not list it as a priority. Although all companies stated they would promote the government's advocated measures such as "cutting naphtha cracking units (NCC)," "merging facilities with other companies," and "vertical integration of refining and petrochemicals," their actual attitude was "my factory continues to operate normally," which contradicts the government's policy of "supporting enterprise-led restructuring while excluding support for free riders."

The petrochemical industry also holds doubts about the feasibility of "self-restructuring." If the issue could be resolved through self-adjustment, it should have been resolved by now. A person from a petrochemical company A pointed out, "Restructuring requires direction and strength. Now, it has come to a point where one company must completely exit its core business, or two companies merge into one, a matter of life and death." "From the company's perspective, this is a game against competitors, but the government asks companies to make decisions on their own, which is bound to lead to a dilemma."

A representative from another petrochemical company B also said, "The parent company's firm commitment to petrochemical business, whether it also has refining business, whether NCC is the main business, whether there is sufficient capital, and whether it wants to immediately exit the petrochemical business, vary widely among companies." "In situations where just a little more endurance may allow survival, no one is willing to be the first to announce 'I will shut down first.'"

The feasibility of restructuring varies depending on the corporate governance structure. Enterprises with a single group holding structure, such as LG Chem and SK Geo Centric, have relatively higher decision-making efficiency. However, joint ventures like GS Caltex (GS Energy and Chevron), Hyundai Chemical (HD Hyundai Petroleum Bank and Lotte Chemical), Yeosu NCC (Hanwha Solutions and DL Chemical), and Hanwha Daewoo Energy (Hanwha Impact and Total Energy) face many obstacles in restructuring due to intertwined interests. In contrast, S-Oil, with Saudi Aramco as its largest shareholder, has taken an opposite approach, continuously expanding its petrochemical business and following an "independent path."

The phenomenon of "lying in the same bed but thinking differently" is particularly evident among companies. Even some factories that have already shut down due to severe losses have not listed restructuring as a priority. Additionally, three companies did not discuss the reduction of NCC, which the government identifies as the primary task of restructuring. Moreover, three companies without refining businesses have listed "vertical integration with refining companies" as a top priority. Notably, nine companies still listed "development of high-value-added products" as a priority, reflecting a consensus on the need to transform the current business model focused on general-purpose products.

The problem lies in the fact that achieving equipment integration and mergers and acquisitions (M&A) in the petrochemical industry, long dominated by large enterprises, is far from simple. The Yeosu NCC faced conflicts over new investment plans among major shareholders, and there were even rumors of bankruptcy. While it is possible for companies to achieve symbolic integration locally, large-scale structural reorganization is generally considered extremely difficult.

The government's "Petrochemical Industry Revitalization Plan" released this time does not propose specific paths or supportive policies for restructuring. Public opinion calls for the government to take a more active role and seize control before the crisis expands.

Choi Chang-yoon, partner at PwC, pointed out, "Restructuring is a race against time and cash flow. To see results in the short term, regulatory restrictions need to be further lifted, and cash incentives should be provided."

Source: JoongAng Daily

Original: www.toutiao.com/article/1842031578747904/

Statement: This article represents the views of the author himself.