The Jurong Aromatics Project Costs and Problems
Project Cost and Funding
Jurong Aromatics became an integral part of the petrochemical industry of Singapore upon its inauguration. In 2014, the project took effect on Jurong Island and marked the creation of one of the largest aromatics plants in the world. The cost of the projected amount to considerable $2.4 billion, which made it one of Singapore’s largest petrochemical greenfield ventures (Kan, 2011). The funding of the project was partially provided by ten prominent banks from different parts of the world with a 60/40 debt-equity ratio.
Approximately 80% of the debt, or $1.24 billion, was provided by South Korean government agencies for 15,5 years. The plant construction was financed by ten international banks, including NG Bank , Royal Bank of Scotland , Intesa san Paolo, Korean Development Bank, Standard Chartered Bank, Australia and New Zealand Bank , BNP Paribas, DnB NOR Bank , Natixis and DZ Bank (Kan, 2011).
Demand and Supply Position of the Products
Jurong Aromatics Corporation has operated in a sector with a high demand for quality products. More specifically, it became one of the leaders of the petrochemical industry of Singapore, ensuring the production and export of essential products for contemporary economic activity. According to Williams (2017), the assets of Jurong Aromatics have a combined production capacity of 1.4 million tonnes of petrochemicals per year. With its high supply levels, the corporation was capable of meeting the growing demand of emerging markets across Asia in terms of aromatics.
Problems and Restructuring Solutions
The operation of the Jurong Aromatics project was problematic since the first stages of its existence. First of all, Soh (2017) reports several financing and construction delays faced by the plant before it was able to launch the production of aromatics. Under such circumstances, the start of the operations had to be postponed, which undermined the integrity of the overall project. Furthermore, five months into normal functioning, Jurong Aromatics had to be temporarily closed. According to Soh (2017), the official statement implied the necessity of the production process recalibration. However, in reality, the project experienced a lack of working capital, which prevented it from maintaining the required pace. Thus, the problems accumulated after the production halt and the working capital insufficiency posed serious threats.
Another problem faced by Jurong Aromatics was the lack of a single centralized office, which could focus on concrete objectives and choose a unified strategy. Jurong Aromatics was owned by eight major shareholders, each of which had independent views on the future of the corporation. The biggest share belonged to the South Korean Group with almost 30%, while the Chinese Jiangsu Sanfagxiang Group owned another 25%. Even though other shareholders held significantly smaller shares, their influence on Jurong’s management was considerable. Therefore, low petrochemical prices and demand reduction were only part of the problem. The complex shareholding structure of Jurong Aromatics prevented rational management and, in some cases, insufficient focus on the Jurong plant, as major investors had other businesses to manage.
In order to amend the situation, Jurong’s Aromatics went into the format of receivership, enabling a one-year tolling agreement. Borelli Walsh firm supervised Jurong’s restructuring, appointing two of its executives as receivers in cooperation with BNP Paribas. This procedure was of utmost importance, as otherwise Jurong would have failed to fulfill its obligations to creditors. The receivership agreement provided Jurong Aromatics with a centralized managing system that was absent before. Even though such a decision was not able to recover the global oil market, it solved the majority of internal problems, which exacerbated Jurong’s position. The plant was reopened to operate in 2016 and was sold to ExxonMobil in 2017. Such a decision played a significant role in the restructure and recovery of the plant as it prevented possible bankruptcy and complete shutdown. Even though the Covid-19 outbreak caused lower demand and oversupply, ExxonMobil was able to prevent shutdown by reducing production rates.
References
Kan, F. (2011). UPDATE 1-Jurong Aromatics signs $1.56 bln financing – bankers. Reuters. Web.
Soh, A. (2017). ExxonMobil emerges as white knight for Jurong Aromatics. The Business Times. Web.
Williams, A. (2017). ExxonMobil to buy Jurong Aromatics petrochemical plant. The Straits Times. Web.