Army helicopters pass by Lotte World Tower in Songpa District, Seoul, in this Sept. 3 file photo. Yonhap
Lotte Group said Thursday that it provided Seoul's landmark Lotte World Tower as collateral to strengthen the creditworthiness of corporate bonds issued by its struggling chemical unit, Lotte Chemical. The move is part of the group's efforts to reassure investors about its financial prudence.
Lotte Group said in a statement that it will offer Lotte World Tower to banks as collateral to enhance the creditworthiness of its corporate bonds through bank guarantees related to the bond agreements.
The 123-story, 555-meter Lotte World Tower is the world's sixth-tallest building and the highest in Korea. Owned by Lotte Property & Development, its current value exceeds 6 trillion won ($4.3 billion).
The statement came after Lotte Chemical revealed last week that it was in a position where creditors could declare an event of default and demand early repayment of its corporate bonds, valued at 2.05 trillion won. This development arose from the company's inability to comply with the predetermined terms of the bonds.
The bond agreements required Lotte Chemical to maintain an EBITDA (earnings before interest, taxes, depreciation, and amortization) of at least five times its average interest expenses over the past three years. However, that ratio dropped to 4.3 times in the third quarter of this year due to declining earnings, enabling creditors to demand full repayment before the bonds' maturity.
Lotte Chemical said that this agreement does not reflect its redemption capabilities, and added that it will hold a meeting with creditors on Dec. 19 to adjust the precondition.
"With this latest measure, we aim to assure stakeholders that Lotte Chemical's liquidity remains stable," the group said in the statement.
The group also said it plans to actively counter recent rumors of a liquidity crisis. When such rumors circulated on Nov. 18, the group's holding company, Lotte Holdings, saw its share price drop 6.59 percent, while Lotte Chemical experienced a sharper decline of 10.22 percent.