S. Korea's KFTC conditionally approves first petrochemical business merger

South Korea's Fair Trade Commission (KFTC) has granted conditional approval for the 'Daesan No. 1 Project,' the first business restructuring plan in the petrochemical sector. This significant merger involves Lotte Chemical, Lotte Daesan Petrochemical, HD Hyundai Oilbank, and HD Hyundai Chemical.

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The Korea Fair Trade Commission (KFTC) on the 20th announced that it would conditionally approve the corporate merger being pursued by Lotte Chemical, Lotte Daesan Petrochemical, HD Hyundai Oilbank, and HD Hyundai Chemical after reviewing the merger.

The KFTC's approval comes with specific conditions aimed at mitigating potential market competition concerns. For five years, price increases or decreases for certain products will be capped to align with export price fluctuations. Additionally, the companies must ensure they supply requested volumes to domestic customers for products manufactured during the merger. The KFTC identified potential competition restrictions in the domestic markets for low-density polyethylene (LDPE) and ethylene-vinyl acetate (EVA), where the merger would reduce the number of competitors from four to three, intensifying an oligopolistic market structure.

Under the approved plan, HD Hyundai Chemical will absorb Lotte Daesan Petrochemical through a merger. Lotte Chemical will then acquire additional shares in the surviving entity, HD Hyundai Chemical. This structure will result in Lotte Chemical and HD Hyundai Oilbank jointly holding a 50% stake each, leading to their co-control of the merged company. The integration will consolidate naphtha cracking facilities and other petrochemical production assets located in the Daesan petrochemical complex, allowing for unified operations.

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The KFTC judged that this corporate merger could substantially restrict competition in the domestic market for low-density polyethylene (LDPE) and ethylene-vinyl acetate (EVA), which are types of synthetic resins.

Further conditions imposed by the KFTC include prohibiting the sharing of competitively sensitive information, such as prices, quantities, costs, and inventory levels, between the merged entities or their affiliates. The appointment of concurrent executives between HD Hyundai Chemical and Lotte Chemical is also forbidden. Employees transferred from Lotte Chemical to HD Hyundai Chemical during the restructuring will be excluded from work related to the two product groups for one year upon their potential return. The KFTC explained that these measures were developed after considering submitted plans, gathering opinions from stakeholders and experts.

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The KFTC decided to impose corrective measures, including limiting the domestic price increase rate to be below the export price increase rate when the export price increases by more than the change in the previous three months, and to be above the export price decrease rate when the export price decreases.