UpdateHonam ventures into Malaysia through Titan acquisition

16 July 2010 08:04  [Source: ICIS news]

(adds analyst's comment on valuation, Titan's financial results)

By Pearl Bantillo

SINGAPORE (ICIS news)--Honam Petrochemical of South Korea announced on Friday its acquisition of a sizeable stake in major polyethylene producer Titan Chemicals, with a view of taking full control of the company for about $1.5bn (€1.2bn).

Honam - a unit of conglomerate Lotte Group - signed an agreement with the Chao Group of Taiwan and the Permodalan Nasional Bhd of Malaysia to purchase 73% of Titan, marking its first venture into Malaysia, Honam spokesperson SH Kim said.

Honam hopes to acquire the remaining 27% of Titan by end November, and delist the company from Bursa Malaysia, he added.

Titan's acquisition would allow Honam, whose current operations are focused on the Chinese market, to penetrate the southeast Asian market, said Kim.

Honam has not been able to export much volume to southeast Asia, where non-ASEAN products are subject to high import duties, market sources said.

Titan would make a perfect fit for Honam given the Malaysian company's strong standing in the region's polyolefins market, they added.

Honam's Kim, meanwhile, cited that Titan also enjoys an advantage in the cost of feedstocks in its operations in Malaysia and Indonesia, among the benefits to be derived from the acquisition.

In terms of valuation of the acquisition, an industry analyst said that Honam could have gotten a better price for the deal if it had waited later this year to make the move, citing  a possible "severe petrochemicals downcycle".

“I am neutral on this [acquisition] deal because Titan, like Honam, has to buy in its naphtha feedstock so the integration is not good," the industry analyst said.

Titan reported on Friday that its second-quarter net profit declined 62% year on year to Malaysian ringgit (M$) 68.5m ($21.3m) due to poor margins even when sales jumped 23% to M$1.69bn.

“Lotte is very aggressive and wants to raise turnover to Korean won (W) 40,000bn ($33bn) by 2018. Turnover, if you include Titan, will only be W12,000bn this year and they have a lot further to go in their acquisitions strategy,” the industry analyst said.

Honam operates a 750,000 tonne/year cracker in Yeosu and a 1m tonne/year cracker in Daesan.

Titan, on the other hand, runs a 285,000 tonne/year No 1 cracker and a 435,000 tonne/year No 2 cracker at Pasir Gudang, Malaysia.

With additional reporting by Peh Soo Hwee, Chow Bee Lin, John Richardson and Nurluqman Suratman

($1 = €0.78 / $1 = M$3.21 / $1 = W1,201)

To discuss issues facing the chemical industry go to ICIS connect
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections


By: Pearl Bantillo
+65 6780 4359



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