Kraton opted not to extend the previously announced Framework Agreement between the company and Formosa Petrochemical Corporation ("FPCC") which expired, in accordance with its terms, on September 30, 2012. The expired agreement had governed the formation of a proposed 50/50 joint venture to build, own and operate a 30 kiloton HSBC plant at FPCC's petrochemical site in Mailiao, Taiwan. Progress on the HSBC joint venture project had been significantly delayed while FPCC waited initially for environmental permit approval, and subsequently while FPCC sought resolution regarding conditions on which the permit was finally approved in July, 2012. FPCC considered the conditions to be too restrictive and limiting on its overall operation in Mailiao, Taiwan.
"Given the importance of the HSBC expansion in Kraton's future growth plans, we are pleased to announce we are moving forward with a stand-alone HSBC expansion project in the Asia Pacific region," says president and CEO Kevin Fogarty. "We believe a significant amount of the engineering and design work conducted to date will be applicable to the alternate location. Moreover, given our significant liquidity and the strength of our balance sheet, we are well-positioned to develop and fund the project on a stand-alone basis," added Fogarty. "Having additional high quality production capability to satisfy our growing customers' future needs is a primary objective for Kraton. In the interim, therefore, we will also explore expansion projects, within our current operating capability, to possibly bridge, if necessary, the timing for the new stand-alone HSBC production."
Presently, it is not possible to estimate with certainty either the project cost or the time-line for completion at an alternate stand-alone location. However, the options under consideration are within existing industrial sites where Kraton should have access to existing infrastructure and utilities, thus minimizing overall project expenditure. In the third quarter 2012 Kraton expects to incur a one-time pre-tax charge not to exceed $10 million associated with the write-off of a portion of project costs incurred to date.