Yeocheon NCC to Close 2 Units... 1.39 Million Tons Production Cut, Launch of Integrated Corporation

Second Restructuring Approval in the Petrochemical Industry After Daesan
Hanwha Solutions and DL Chemical to Invest a Total of 800 Billion Won in Self-Rescue Efforts and Investments
Government: "Restructuring Discussions for Ulsan to Be Promptly

The restructuring plan for the Yeosu petrochemical business has received final approval. The core is the merger between Yeocheon NCC and Lotte Chemical. To facilitate this, the government will provide a customized support package worth a total of "700 billion won plus alpha," including financial and tax benefits. The companies involved have decided to invest a total of 800 billion won, including settling existing Yeocheon NCC debt through paid-in capital increases and investing in the implementation of the restructuring.

The Ministry of Trade, Industry and Energy announced that it discussed the status and support package for the Yeosu Project No. 1 restructuring at the "Emergency Economic Headquarters and Meeting on Economic and Industrial Competitiveness Enhancement," presided over by Deputy Prime Minister and Minister of Economy and Finance Koo Yoon Cheol on the 22nd.

Yeocheon NCC Naphtha Processing Facility. Yonhap News Agency

Previously, on July 20, the Ministry of Trade, Industry and Energy granted final approval for the business restructuring plan submitted by Yeocheon NCC, Lotte Chemical, Hanwha Solutions, and DL Chemical. This marks the second case of restructuring approval in the petrochemical sector, following the Daesan Project No. 1 restructuring (HD Hyundai Oilbank, HD Hyundai Chemical, Lotte Chemical) announced in February of this year.

The key to the restructuring is the merger of the current Yeocheon NCC and Lotte Chemical. In the upstream (basic feedstock) segment, operations of Yeocheon NCC's naphtha cracking units No. 2 and 3 will be suspended, and Lotte Chemical's Yeosu plant NCC will be integrated as a new No. 4 unit within a newly established merged entity. In the downstream (petrochemical materials) segment, the competitive core businesses of shareholders—DL Chemical’s polyethylene (PE), Hanwha Solutions’ Yeosu PE and petroleum resins, and Lotte Chemical’s basic materials business in Yeosu—will be consolidated into the new entity.

In this process, Hanwha Solutions and DL Chemical, both shareholders of Yeocheon NCC, will each provide 272.5 billion won in paid-in capital increases (totaling 545 billion won) to repay Yeocheon NCC’s existing debt, and will invest an additional 253.2 billion won for the implementation of the restructuring—such as stabilizing the supply chain through pipeline and infrastructure construction and converting to high-value-added production. The total investment will amount to 800 billion won. The process will continue with contract signing between companies, board approvals, and procedures such as corporate split and merger, eventually completing the establishment of the new integrated entity.

◆ Government's "700 billion won plus alpha" Customized Support Package = To ensure the success of the Yeosu Project No. 1, the government has prepared a package of customized support measures, including: ▲finance and taxation, ▲cost reduction and system rationalization, ▲regional economic and employment support, and ▲technology development.

First, financial institutions will provide 450 billion won in new funding and repayment deferrals for agreement-related debts to support facility integration and conversion to high-value-added production. The Korea Trade Insurance Corporation plans to expand import insurance support to 200 billion won, offering premium discounts (up to 30%) and doubling guarantee limits (up to 2x).

Tax burdens will also be reduced. In the process of corporate splitting, mergers, and asset transfers, the period for deferred corporate tax payment on asset sales will be extended from "4 years deferred + 3-year installment" to "5 years deferred + 5-year installment," while local taxes such as acquisition tax and registration license tax will be reduced by 75–100%, greatly easing the burden. In cases where the restructuring company suspends redundant assets, tax deferral for qualifying mergers will also be applied. Furthermore, the government will expedite reviews through the pre-consultation system of the National Tax Service if an interpretation of the tax law on qualifying mergers is requested.

To cut costs, a zero-tariff (0%) rate will be applied to imported naphtha and crude oil for naphtha production until 2026, and during the restructuring period, restrictions on the overlap of heat supply areas will be temporarily relaxed. Rationalization of related systems will also proceed: the government will support infrastructure rental costs for pipelines and pipe racks, and improve permitting and regulatory processes. If companies need to reacquire permits held before the restructuring, related procedures will be streamlined to prevent factory shutdowns until completion, simplifying key permits such as petroleum sales permits and succession of chemical substance registration.

To vitalize the regional economy and employment, 1.3 billion won will be invested. If the employment situation does not improve after the designation period as a preemptive employment crisis response area, the government will consider designating the area as an employment crisis area. In addition, the requirements for maintaining sales revenue will be eased, and when unavoidable, new hiring of R&D personnel will be exceptionally allowed during employment retention measures to support employment stability. The government will also subsidize part of the training costs when restructuring companies provide advanced and reorientation training for incumbent employees and will raise the upper limit for local investment promotion subsidies to encourage more investment.

For industrial advancement, a support package worth "34 billion won plus alpha" will be provided. From this year, mid- to long-term, essential, and promising R&D projects submitted as demands by restructuring-approved companies will receive expedited support, and large-scale R&D initiatives for transitioning to high value-added and eco-friendly sectors will also be promoted. Additionally, by designating core and source technologies for new growth under the Special Tax Treatment Control Law, the government will incentivize new investments in high value-added and eco-friendly fields.

◆ Government Expects to Alleviate Oversupply and Accelerate High-Value-Added Transition... Ulsan Next = The government expects, over the three-year restructuring period, to alleviate market oversupply by shutting down two ethylene production facilities with a combined capacity of 1.39 million tons and suspending operations of general-purpose low value-added production plants. It also expects to improve production efficiency and profitability by increasing operation rates of other facilities.

The new integrated company will secure new growth drivers through the transition to producing high value-added and eco-friendly products such as medical low-density polyethylene (LDPE) and polyolefin elastomers (POE) for adhesives in medical, food, and hygiene applications. The shareholder companies—Lotte Chemical, DL Chemical, and Hanwha Solutions—are also expected to focus on advanced high-value-added and eco-friendly chemical industries. In particular, through efficiency gains from integrated operations and self-rescue efforts, business losses are projected to turn into profits after the restructuring period, and the debt ratio is also expected to decrease significantly, greatly improving corporate financial structures.

The government plans to prepare a comprehensive strategy in the second half of this year to strengthen competitiveness across the chemical industry ecosystem, including stabilization of the petrochemical supply chain—whose importance has been highlighted by the ongoing Middle East conflicts—and advancement into high-value-added and eco-friendly fields as well as regional economic and employment support.

Moon Shinhak, Vice Minister of Trade, Industry and Energy, stated, "For the structural reform of the petrochemical industry to succeed, all industrial complexes must participate in the restructuring with no free riders. In addition to Daesan and Yeosu, we will promptly advance restructuring discussions for the Ulsan region so our petrochemical industry can regain its competitiveness and achieve a new leap forward."

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