Lotte Chemical Vice Chairman Kim Kyo-hyun. Korea Times file

By Lee Kyung-min

Three local credit rating agencies are rushing to lower the outlook for Lotte Chemical, Monday, casting doubt over whether the chemical affiliate of Lotte Group spending 2.7 trillion won ($1.8 billion) to buy Iljin Materials, the country's second-largest copper foil manufacturer, was business overreach.

Lotte Chemical Vice Chairman Kim Kyo-hyun said the firm "has no plan to provide any funding to Iljin," as solidified by overseas manufacturing plants expansion facing no complications at all, a prospect lifted further by its cash generation capabilities from stable supply contracts with long-term clients. These were cited in an interview with a local media outlet, Sunday.

However, the three agencies ― Korea Ratings, Korea Investors Service and NICE Investors Service ― said the current AA+ rating for Lotte Chemical would come under review, due in large part to a significant increase in the corporate debt ratio and borrowing.

The debt ratio for the firm will spike to 59.7 percent, up from 52.1 percent, if the Lotte chemical affiliate borrows roughly half of the takeover price of 2.7 trillion won.

Also advancing the bleaker outlook are expected delays in the recovery of the petrochemical businesses, as illustrated by 61.2 billion won in operating profit in the first six months of this year, about half of the 1.21 trillion won operating profit a year earlier.

The months-long headwinds include elevated global key commodity prices, supply increases brought on by a higher volume produced this year and tightening demands due to accelerating inflation.

The net borrowing of the firm rose 1.7 trillion won as of June, due to a combination of shareholder return policies and new facility and equipment investments from within the country and abroad.

"The firm's growing dependence on borrowing over the past few months would have continued through next quarter, as hobbled by higher probability of depreciation and undervaluation in inventoried products and input materials from sinking prices of petrochemical products," Korea Ratings said in a report.

The only upside to acquiring the copper manufacturer is securing a future growth driver, a timely move to advance the rechargeable batteries business certain to thrive in the years to come on growing demand worldwide.

"The firm's long-term growth prospect will gain momentum, as enhanced by battery and its key material businesses," Korea Investors Service said in a report.