Lotte Chemical raised 200 billion won through a 3-year corporate bond offering backed by guarantees from four major South Korean banks, receiving orders totaling 310 billion won—1.6 times the target amount. The bonds received AAA ratings from Korea Ratings and NICE Credit Rating due to principal and interest payment guarantees from Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank, despite Lotte Chemical's standalone credit rating of AA- with a negative outlook. The bond spread was set at 35 basis points above the 3-year AAA bank bond average rate, near the upper end of the company's proposed range of ±40bp. The relatively modest oversubscription reflects investor caution stemming from prolonged weakness in the petrochemical sector, as Lotte Chemical posted cumulative operating losses of 1.86 trillion won over two consecutive years before returning to profitability in Q1 with operating income of 73.5 billion won.
Lotte Chemical Sets Bond Spread at 35bp Above AAA Bank Rates
The company conducted demand forecasting on the 23rd for the 200 billion won issuance and collected total orders of 310 billion won. The spread was set at 35bp above the 3-year AAA-rated bank bond average rate based on the募集 amount. This level approached the upper end of Lotte Chemical's proposed rate band of ±40bp relative to the bank bond average.
Four Banks Provide Payment Guarantees for AAA Rating
The bonds are guaranteed securities with principal and interest payment guarantees from four commercial banks: Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank. Based on these guarantees, Korea Ratings and NICE Credit Rating assigned an AAA (stable) rating identical to the guarantor banks' ratings. Lotte Chemical's standalone credit rating stands at AA- (negative), with credit rating agencies having downgraded the rating outlook last month due to prolonged downturn in the petrochemical industry.
Company Reports Q1 Operating Profit After Two-Year Loss Streak
Lotte Chemical recorded consolidated revenue of 4.99 trillion won and operating profit of 73.5 billion won in Q1, returning to profitability. However, the company posted large-scale losses for two consecutive years: an operating loss of 914.5 billion won in 2024 and 943.1 billion won in 2025. The company stated in its securities registration statement that Q1 performance improvement resulted from product price surges due to supply chain disruptions and the effect of low-cost raw material inputs, and that the improvement effect is expected to diminish once high-priced naphtha inventory is utilized.
Proceeds to Refinance 200 Billion Won in Maturing Commercial Paper
The raised funds will be used entirely for repaying existing debt. The company plans to refinance a total of 200 billion won in commercial paper (CP) maturing next month and in September. Eight securities firms served as lead underwriters: Kiwoom Securities, KB Securities, NH Investment & Securities, Korea Investment & Securities, Shinhan Investment, Samsung Securities, Hana Securities, and Woori Investment & Securities.
FAQ
Why did Lotte Chemical's bond demand reach only 1.6 times the target amount despite AAA rating?
Investor caution stems from prolonged petrochemical industry weakness. Lotte Chemical posted cumulative operating losses of 1.86 trillion won over 2024 and 2025, and the company disclosed in its securities registration statement that Q1 profitability improvement resulted from temporary factors including supply chain disruptions and low-cost raw material inputs, with expected diminishing effects once high-priced naphtha inventory is consumed.
How did Lotte Chemical obtain an AAA rating with a standalone rating of AA-?
The bonds received AAA ratings from Korea Ratings and NICE Credit Rating due to principal and interest payment guarantees provided by four major South Korean banks: Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank. The rating agencies assigned the bonds the same AAA (stable) rating as the guarantor banks, regardless of Lotte Chemical's standalone AA- (negative) rating.
