KCC's silicone plant in Seosan, South Chuncheong Province / Courtesy of KCC

KCC Chairman Chung Mong-jin / Courtesy of KCC

KCC, a Korean chemical and auto parts manufacturer, is under mounting financial pressure after paying back investments the company received from a private equity fund for its ill-timed acquisition of U.S.-based silicone firm Momentive Performance Materials, according to industry officials, Thursday.

In 2019, the Korean chemical firm took over Momentive by forming a consortium with SJL Partners. Under the contract, KCC promised to push for a U.S. stock listing of Momentive in five years. However, the plan has hit a snag due to the dismal earnings performance of the acquired entity.

Under the contract between KCC and SJL Partners, KCC has to buy back the private equity firm's stake in Momentive unless the listing plan makes timely progress by the end of May 2024.

However, after KCC decided to drop the earlier plan and delay the timeline further, the company ended up acquiring the 20-percent stake that SJL held in Momentive. To raise the capital, KCC recently took out a 400 billion won ($290 million) loan from a special purpose corporation supervised by Hana Bank.

This is feared to add more financial burdens to KCC, at a time when the firm's silicone business has shown sluggish performance. Sales for KCC's silicone business last year fell by 24.9 percent in 2023 from a year earlier. This incurred an operating loss of 83.2 billion won during the business last year.

A spokesperson at KCC said that the company will continue to closely monitor the market for Momentive's potential listing in the U.S.

"After acquiring the remaining stake held by SJL, we secured a 100-percent stake in Momentive," an official from KCC said.

"We have not canceled our earlier plan to push ahead with the initial public offering of the company. But we will watch and monitor carefully the market circumstances, and will push for the listing of the company at an opportune time."

Coupled with the escalating financial burden, market analysts also pointed out that it will take more time for the firm's silicone business to make a meaningful rebound.

"KCC will be able to speed up the normalization of its silicone business after taking full management control of Momentive, but it will take more time for the potential rebound in the profitability of the business, so we revise down earnings outlook on the firm in 2024 and 2025," Park Se-ra, an analyst at Shinyoung Securities, said.

Despite unfavorable market circumstances, KCC Chairman Chung Mong-jin displayed his firm willingness to keep making more investments in the silicone business, calling it the firm's next major cash cow, during his New Year's speech.