South Koreans to sell Lotte Chemical Pakistan to local conglomerate

A South Korean chemical company became the latest foreign company to exit the Pakistan market as Lotte Chemical Company Pakistan Ltd said the Seoul–based majority shareholder was selling the entire stake of 75.01 percent in the local firm to optimise its overall business portfolio.

In this connection, Lucky Core Industries Ltd on Monday said it was buying the shareholding from the foreign investor but neither of the two companies disclosed the size of the transaction in their respective securities filings.

However, analysts, based on a Bloomberg News story that referred to the transaction value in the South Korean currency, said the deal was signed at Rs31.30 per share which means the local acquirer will pay $155.8 million or Rs35.5 billion for the stakes in the company valued at $207.7m.

In his comments, Arif Habib Ltd CEO Shahid Ali Habib said the divestment of shares by the Korean investor shouldn’t be construed as flight of foreign capital from Pakistan, as the Koreans were looking for an exit for about a year and a half and their decision has nothing to do with local issues.

He, however, said the importance of the deal couldn’t be overemphasised in view of the prevailing economic and political situation. “It’s a great transaction in the sense that a local conglomerate has stepped up and demonstrated its commitment to the country,” he said.

Lotte Chemical Company makes purified terephthalic acid (PTA), which is a raw material for textile and packaging industries. The company enjoys a captive market of sorts as the country’s only manufacturer and supplier of PTA. Its entire output is consumed by the local textile and packaging industries.

The foreign investor will use the proceeds of the divestment to expand its “value-added operations” and enter “eco-friendly materials business”.

Habib added that the local buyer — which is a part of the Yunus Brothers Group that controls stakes in cement, textile, power generation and commodity trading businesses — was expected to increase the PTA-producing capacity of Lotte Chemical Company from the existing 500,000 tonnes annually to make the company export-oriented.

The divestment by the Korean investor is part of a years-long trend in which foreign companies have been exiting the Pakistan market. Multiple sources within the corporate sector said few foreign investors have been able to repatriate dividends from Pakistan since March 2022.

This is despite the fact that the country touts a liberal foreign investment policy that allows 100 percent profit repatriation. According to one source, the amount of dividends pending for repatriation is in excess of $1bn. The State Bank of Pakistan last updated its monthly data for profit repatriation in December 2022.

The dollar payments are expected to stay stuck in the foreseeable future given that the country’s foreign exchange reserves are at a multi-year low.

Lucky Core Industries was known until recently as ICI Pakistan Ltd. Back in 2008, AkzoNobel, which is one of the largest coatings and chemicals companies globally, became the ultimate holding company of ICI Pakistan Ltd. Lucky Holdings Ltd then acquired the majority shareholding from AkzoNobel in 2012 and became the ultimate holding company of ICI Pakistan Ltd.

It went on an acquisition spree in the following years and acquired assets in pharmaceutical, chemical and formula milk businesses. Its net profit for 2021-22 amounted to Rs8.86 billion on a consolidated basis, up 69 percent from a year ago with the consolidated turnover increasing by 56 percent to Rs100.86 billion in the same year.

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