(Bloomberg) -- Bondholders of Lotte Chemical Corp. approved removing a covenant clause from the company’s debt, allowing a core part of one of South Korea’s largest conglomerates avoid a possible default.
Creditors agreed to take out the language around an interest coverage requirement in bond documents that Lotte Chemical failed to meet in third quarter, the company said in a statement. Without the approval, the deficiency may have allowed investors declare an event of default and force an early redemption of the notes.
Lotte Corp., the holding company of the conglomerate, has sought to allay concerns around its loss-making petrochemical unit and pledged last month to put up the tallest building in South Korea as collateral to back the the business’ debt. The scare put the spotlight back on credit difficulties at some Korean firms after higher interest rates had exposed vulnerabilities in the property sector and caused builder Taeyoung Engineering & Construction Co. to restructure debt earlier this year.
Lotte Chemical, whose operating loss swelled to 660 billion won ($456 million) in the first nine months of this year, is suffering from stiff competition in the petrochemicals industry, fueled in part by supply from China.
The balloted interest coverage clause required Lotte Chemical to have earnings before interest, taxes, depreciation and amortization of five times or more interest expenses, and was included in fourteen bonds issued between September 2013 and March 2023.
The group parent said last month companies in the conglomerate held 15.4 trillion won in readily available deposits and liquidity was stable. Lotte Chemical has no problem in repaying the principal and interest of bonds, it added.
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