ISLAMABAD: Lucky Core Industries (LCI), formerly known as ICI Pakistan holdings, has entered into a Share Purchase Agreement (SPA) with South Korean multinational Lotte Korea to purchase the chemical giant’s entire 75.01% shareholding in Lotte Chemical Pakistan (LOTCHEM). The deal will cost over $156 million and is expected to complete by the end of the year subject to regulatory approvals.
Lotte Korea (or Lotte Chemical Corporation) is the parent company of LOTCHEM Pakistan and holds 75.01% shareholding in the subsidiary. This entire shareholding is being sold to LCI, which is a subsidiary of Lucky Cement Limited.
The announcement of the SPA was made to the Pakistan Stock Exchange (PSX) by both LCI and LOTCHEM on Friday.
The notification by LOTCHEM read, “We would like to inform you that the Board of Directors of the Lotte Chemical Corporation (“LCC Korea”), the majority (75.01%) shareholder of Lotte Chemical Pakistan Limited (“Company”) has entered into Share Purchase Agreement dated January 26, 2023 with Lucky Core Industries Limited for the sale of all of the Company’s shares held by LCC Korea (i.e. 1,135,860,105 constituting approximately 75.01% of the issued and paid-up capital of the Company) for the purpose of the optimisation of LCC Korea’s business portfolio (“Proposed Divestment”).”
After the SPA, the next step in the acquisition process for LCI is the announcement of a public offer which means LCI will also have to buy shares from the general public in tender, following which the shareholding of LOTCHEM will change hands. According to independent analyst Suleman Maniya, in the case of such a majority transfer of ownership, acquisition rules dictate that LCI has to make an offer to buy a total of 87.51% shareholding (tender of around 12.5%).
Earlier, the Board of Directors (BoD) of Lotte Korea made the decision to sell its Pakistani subsidiary on January 13 to LCC. The deal was subject to the signing of a SPA on January 26, which has now been confirmed.
However, LCI was not the only company in the race to acquire LOTCHEM. Other interested parties included Novatex (Private) Limited and AsiaPak Investments. Novatex was leading the race to acquire LOTCHEM until late last year but the deal fell through after progress was hindered by Pakistani authorities due to a dollar shortage in Pakistan.
The LCI took its chance and came up with a better offer to Lotte Korea after which Novatex withdrew from the acquisiton race. Subsequently, AsiaPak Investments also announced their withdrawal to acquire Lotchem on January 24th, 2023.
The LCI made the public announcement to acquire 75.01% shareholding of LOTCHEM last year on July 22, through their manager of the offer, Optimus Capital Management (Private) Limited. On October 7, 2022, the BoD of LCI authorised the company to submit a binding bid for the acquisition. The SPA was signed on January 26, 2023. The public offer by LCI is expected in the next few weeks. However, It is unclear how LCI will arrange for the payment in dollars considering Pakistan is short on dollar reserves.
Why is Lotte Korea selling Lotte Pakistan?
The Korean chemical giant wants to sell off its Pakistani subsidiary in order to streamline its global business operations with a focus on advanced materials and eco-friendly products.
LOTCHEM Pakistan engages in the production of purified terephthalic acid (PTA). This PTA is widely used to make Polyethylene terephthalate (PET) bottles and other polymer products, such as fibres, resins and thin films. Lotte Korea in 2020 closed its own domestic PTA production line in Ulsan, South Korea, to become more ecologically responsible. The sale of the Pakistani unit means that the chemical giant will no longer engage in PTA production.
The South Korean corporation wants to consolidate its operations by focusing on cutting-edge materials and ecologically responsible goods. The proceeds from the sale are predicted to strengthen the company’s advanced materials division, improve the development of environmentally friendly synthetic chemicals, and modernise the current chemical products used as plastics’ feedstock.
In the PSX, LOTCHEM’s shares had the eighth highest trading volume during the Friday trading session with a volume of over 4.7 million shares. The share price opened at Rs 26.73 and closed at Rs 25.37, a decrease of 5.09% during the day. This decline is not due to any particular reason related to the sale of Lotchem but because of uncertainty in the stock market.
Lucky Group of industries is the backbone of cement sectors and the real estate sector.