MSWG urges Lotte Chemical Titan to 'seriously strengthen' operational risk management

MSWG urges Lotte Chemical Titan to 'seriously strengthen' operational risk management
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KUALA LUMPUR (Oct 9): The Minority Shareholder Watchdog Group (MSWG) has slapped Lotte Chemical Titan Holding Bhd, the largest initial public offering (IPO) on Bursa Malaysia this year, with a call to "seriously strengthen" its operational risk management to reduce its impact on the company's corporate image and financial objectives.

The call by MSWG was related to the recent five-day stop-work order at its catalytic cracking reactor plant, which is part of its TE3 Project, in Pasir Gudang, Johor.

"We believe even with the clarification statement released by the company to claim that the impact of the incidences was minimal to the company, damage has been done and the incidences could have impaired the confidence of the investing public towards the company," MSWG said in its latest The Observer weekly newsletter.

"This was the third incidence of operational disruption that happened to the company within the past three months since the listing of the company in July 2017," the watchdog group added.

The previous two incidences that had damaged the credibility of Lotte Chemical Titan's operating image were a fire that caused minor damage on Sept 20 and a 13-day water supply cut in April, following which the company saw a huge decline in production volume that subsequently eroded its earnings in the second quarter ended June 30, 2017.

To recap, Lotte Chemical Titan had on Oct 1 received a stop-work order from the Department of Environment (DOE), which subsequently resulted in a sharp drop in its share price to below RM5 the next day — the lowest since its listing on July 11.

Following satisfactory completion of the remedial action, Lotte Chemical Titan said the stop-work order was lifted by the DOE on Oct 5.

The DOE, under Section 38 of the Environmental Quality Act 1972, is empowered to inspect — without a warrant — and also to stop the operation of any vehicle, ship, aircraft, or businesses at any premises suspected of causing environmental damage.

As for the stop-work order — a government directive that has tarnished its corporate image — Lotte Chemical Titan said it was issued after the DOE had identified its plant in Johor as the source of a stench that had reached Singapore's shores.

The stop-work order, the chemical firm added, was given to mitigate and reduce odour emission and eliminate surface oil sheen/film discharge.

As for the potential impact, the petrochemical firm owned by Lotte Co Ltd, a South Korean conglomerate behemoth, had previously said that "it does not have any operational impact", as its TE3 Project has not commenced operations.

Code-named TE3, Lotte Chemical Titan had in its IPO prospectus said the project aims to increase the output of ethylene, propylene and other by-products such as C4 and C5, which will be done after it completed the construction of relevant facilities.

"The commissioning and the commercial start-up of the TE3 Project remain on target by fourth quarter of 2017," Lotte Chemical Titan had on Oct 4 said in a filing with Bursa Malaysia.

At noon break, shares in Lotte Chemical Trading fell one sen or 0.2% to pause at RM5.22 today, giving it a market capitalisation of RM12.05 billion.