S-Oil’s land buy hints at major S Korea petchem expansion: Moody’s

21 February 2014 09:03 Source:ICIS News

SINGAPORE (ICIS)--S-Oil may venture into a major expansion of its petrochemical operations that will likely follow a successful acquisition of a plot of land in Ulsan, South Korea, credit ratings firm Moody’s Investor Service said on Friday.

The South Korean producer won a bid to purchase land from Korea National Oil Corp for won (W) 519bn ($483m). The acquisition will weigh on S-Oil credit ratings, Moody’s said.

"The land acquisition indicates a significant likelihood that S-OIL will launch a large expansion of its petrochemical production capacity," Moody’s vice president and senior analyst Mic Kang said.

S-Oil has expressed interest in pursuing the expansion to diversify its product offering – to produce high value-added, cost-competitive petrochemical products.

“Moody's considers such a move as strategically important, as it will help reduce S-OIL's reliance on the volatile refining business and allow the company to more effectively compete with gas-based chemical producers over the longer term,” the ratings firm said.

But in the next two to three years, the land purchase will put a pressure on the company’s financial profile, while the proposed petrochemical expansion will entail execution risks, Moody’s said, citing that this might lead to a revision in producer’s credit rating outlook to negative from stable.

S-Oil is the third-largest oil refining and marketing company in South Korea by refining capacity, according to Moody’s.

The company also operates paraxylene plants, with production capacities totalling 1.60m tonnes/year, and benzene-toluene-xylene (BTX) plants with capacities totalling 930,000 tonnes/year, Moody’s said.

S-Oil also has a lubricant plant producing 38,100 barrels of output a day, it added.

($1 = W1,074)

By Pearl Bantillo