KFTC Temporarily Halts Lotte and HD Hyundai's Petrochemical Mega Deal... Launches 'Deliberation Fast-Track'

Deliberation Begins on Daesan Plant Integration, Petrochemical Restructuring Initiative No. 1

KFTC Notifies Parties of LDPE and EVA Monopoly Concerns

Fast-Track Review Launched After Agreement on Corrective Measures Submission

The Korea Fair Trade Commission (KFTC) has raised concerns about potential restrictions on competition, effectively putting the brakes on the proposed restructuring plan for the "Daesan Petrochemical Complex Naphtha Cracking Center (NCC) Integrated Operation" project (Daesan Initiative No. 1) being pursued by Lotte Chemical and HD Hyundai Oilbank as a survival strategy amid the prolonged downturn in the petrochemical market. The regulator determined that if the two companies combine their businesses, there could be a substantial risk of monopoly and price increases (both unilateral and coordinated effects) in the domestic markets for low-density polyethylene (LDPE) and ethylene-vinyl acetate (EVA). However, since the conglomerates have agreed to the KFTC's concerns by engaging in the "submission of corrective measures process" and have committed to presenting their own remedies, the KFTC is expected to hold a committee review shortly and likely finalize approval of the business restructuring in a conditional format.

Lotte and HD Hyundai Push for NCC Merger... 50-50 Ownership Structure

Lotte Chemical Daesan Plant. The Asia Business Daily database.

On July 15, the KFTC Secretariat announced that it had sent an examination report outlining possible violations to the companies under review after determining there was a high likelihood of legal infractions concerning the business combination involving four entities: Lotte Chemical, Lotte Daesan Petrochemical, HD Hyundai Oilbank, and HD Hyundai Chemical. With this, the formal review of this mega-scale combination at the Daesan petrochemical complex has now commenced.

The crux of this business combination is to reduce fixed costs and maximize efficiency through facility integration. The restructuring will be carried out via an absorption-type merger, in which HD Hyundai Chemical will absorb Lotte Daesan Petrochemical, a company that was newly established through a physical division from Lotte Chemical in June. Once the merger is complete, Lotte Chemical will acquire additional shares in the surviving entity (HD Hyundai Chemical), leading to a structure where both Lotte Chemical and HD Hyundai Oilbank each hold a 50 percent stake, making them joint largest shareholders.

Through this, both companies plan to integrate and jointly operate their respective naphtha cracking centers (NCCs) and other downstream petrochemical product manufacturing facilities located in adjacent sites within the Daesan industrial complex in South Chungcheong Province, covering the process from feedstock supply to production as a single operation.

Why Did the KFTC Intervene? Concerns Over Domestic LDPE and EVA Monopolies

The KFTC has not approved this megaton-scale deal due to concerns over potential monopolization in the domestic plastics and photovoltaic raw material markets. After receiving the voluntary pre-merger notification in November of last year, KFTC examiners conducted a detailed analysis of 20 related product markets ranging from upstream products such as ethylene and propylene, intermediates, to downstream products produced at the Daesan complex. The analysis found that if the two companies' facilities are merged, they would secure an overwhelming market share in the LDPE market—used for agricultural film and paper cup coatings—as well as the EVA market, an essential material for solar cell films and shoe soles.

The commission identified both the "coordinated effect," where the number of competitors would dramatically decline, making secret price or trading condition collusion among large companies easier, and the "unilateral effect," where even if the merged entity raises product prices independently, consumers would have difficulty sourcing alternative products in a timely manner. Consequently, the KFTC has concluded that the proposed combination violates Article 9 of the Monopoly Regulation and Fair Trade Act (Restriction on Anti-Competitive Business Combinations).

‘Deliberation Fast-Track’ Initiated… Signaling a Wave of Petrochemical Restructuring

Fortunately, it appears this deal will not collapse. Upon recognizing the warning signal from the KFTC, both Lotte and HD Hyundai promptly agreed with the commission to enter the "submission of corrective measures process."

This process is a type of 'fast-track' that allows companies to propose their own remedies to address monopoly concerns (such as price hike limitations, mandatory supply quotas, etc.), after which examiners incorporate these proposals into their report, significantly compressing the time required to convene the review and issue the resolution, and thereby swiftly approving the combination. The parties under review have already submitted their final corrective measures, which reflect a substantial number of amendments and supplements based on feedback from stakeholders and experts at the KFTC's request.

Going forward, the KFTC plans to quickly conclude its review and finalize the business combination assessment for the Daesan Initiative No. 1 petrochemical restructuring. Additionally, it will closely monitor the impact of future petrochemical restructurings on market competition to ensure that competitive dynamics are preserved within the domestic petrochemical industry.

This content was produced with the assistance of AI translation services.