Korea LG Chem boosts PVC output via deal

South Korea's LG Chemical Ltd would become the world's seventh largest producer of polyvinyl chloride (PVC) after signing a deal yesterday with Hyundai Petrochemical to acquire its PVC operation. LG Chemical said in a statement it had signed a contract to buy Hyundai's PVC and vinyl chloride monomer (VCM) businesses for 105 billion won ($90.12 million).
The acquisition would boost LG Chemical's domestic PVC output to 750,000 tonnes
per year (tpy) from the current 550,000 tpy.

LG Chemical's PVC and VCM units are located in Yosu, while Hyundai's PVC and VCM units are located in Daesan. Its total output of PVC, which includes a 150,000 tpy production facility in
China, would be lifted to 900,000 tpy. LG Chemical would become the second largest PVC producer in Asia. Japan's Shin-etsu Chemical is the world's largest PVC maker with production capacity of 2.75 million tpy.

The acquisition also consolidates LG Chemical's position as the leading VCM maker in South Korea by increasing its output to 800,000 tpy from the current 600,000 tpy. The deal would allow both sides to strengthen their strategic core businesses domestically and globally, LG Chemical said in the statement. LG's takeover of Hyundai's PVC and VCM operations is considered a voluntary move to integrate, it said.

Industry analysts were positive about LG's acquisition of Hyundai's PVC and VCM businesses, saying the increased output would consolidate LG's position as South Korea's premier specialty chemical company. But they also expressed concern about how the company would come up with the funds for the acquisition.

"LG Chemical would be better off if it paid for the businesses before its own corporate spin-off takes place next year," said Lee Yol-su, analyst at LG Securities. LG Chemical announced earlier this month its board of directors had approved a plan to split the company into three entities. "There may be some objection from the investment division of the pre-spinoff company to help pay for the acquisition," said Lee.

Lee added that the post-spinoff chemical entity would see its gearing ratio rise above 200 percent from the current 162 per cent if it had to bear the cost of the acquisition alone. While domestic supply of PVC far exceeds market saturation point, LG said exports account for 40 percent of total domestic production. South Korea's PVC output totals 1.2 million tpy while its VCM output totals 1.3 million tpy.

VCM is the main feedstock for the production of PVC which is used to produce plastics consumed in construction and packaging as well as films. Hyundai earlier this month said it had agreed to sell its PVC and VCM businesses to LG Chemical for 100 billion won, but that it needed approval from the Fair Trade Commission to approve the plan before the two companies could seal the deal. In addition to LG Chem and Hyundai, Hanwha Chemical is the other PVC producer in South Korea with output capacity totalling 510,000 tpy.