24 March 2003 00:00 [Source: ACN]SK Corp's bid to consolidate its position in the petrochemicals sector by finding a joint-venture partner has taken a turn for the worse as a result of the financial scandal that has hit its 38.7%-owned sister company, SK Global, a source close to the company said.
Other petrochemicals producers in South Korea might be unwilling to enter into discussions for mergers or other alliances because of the scandal, an analyst added.
The SK Group's trading arm, SK Global, was this month alleged to have inflated its profits by Won1500bn (US$1.2bn).
In addition, the SK Group chairman, the SK Corp chairman, and eight other top executives of the SK Group have been indicted for accounting fraud.
SK Corp's chairman and chief executive officer, Chey Tae-won, was taken into custody in February for alleged stock manipulation (ACN 3 Mar, p6). He will not be allowed to apply for bail until the prosecution has presented its case.
SK Corp has been evaluating a merger of its petrochemical assets with those of Samsung General Chemicals (SGC) and Atofina, although it has not approached either party. SGC signed an MoU with Atofina to form a joint venture in early December last year.
SK Corp had been in the running to acquire Hyundai Petrochemical until early December, when creditors rejected the SK Corp bid, along with those of Huntsman and US equity fund Ripplewood Holdings LCC.
Hyundai, subject to regulatory approval, is to be sold an LG Chem/Honam Petrochemical consortium. This would create a group with an ethylene capacity of 2.5m tonne/year compared with SK Corp's 830 000 tonne/year. SK Corp has conceded it must consolidate its petrochemical operations, as most of its competitors in South Korea have done.
In December 2001, SK Corp's efforts to form a polyolefins merger with Daelim Industrial and PolyMirae fell through due to differences in asset valuations and concerns over feedstock pricing on SK Corp's part.
On paper, the combined entity would have very strong market positions, especially in PP. PolyMirae, a joint venture between Basell and Daelim, has a capacity of 500 000 tonne/year, and SK Corp, 340 000 tonne/year.
SK Corp has also to date tried and failed to lure fellow Ulsan-based producers Korea Petrochemical Industry Co, a 340 000 tonne/year cracker operator and PE and PP player, into a merger. KPIC has been concerned that the merger would, in fact, become a takeover because of SK Corp's much greater scale.
SK Corp has also made overtures to Hyosung Corp, which is again located at Ulsan, but the PP and fibre intermediates player has not responded positively.
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