KT&G again shipping smokes to Middle East

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KT&G again shipping smokes to Middle East

Korean tobacco maker KT&G signed a $1.8 billion deal to export cigarettes to the Middle East with its old partner Alkozay International, the company announced in a regulatory filing on Thursday.

The Middle East was one of KT&G’s main export markets, accounting for 54 percent of the company’s overseas revenue in 2017.

Middle East sales, however, retreated in the following two years, due to unstable geopolitical situations in the region and unfavorable currency exchange rates.

Uncertainties for the company’s Middle East business continued when KT&G’s contract with Alkozay terminated late last year without renewal.

The new contract promises a minimal earning of $1.8 billion between February of this year and June 2027, according to KT&G. The figure is based on a minimum purchase volume that Alkozay is required to buy regardless of demand - the first time such a clause has been included in the contract.

Previously, the exported volume was based solely on Alkozay’s orders. Under the new deal, earnings may go up if Alkozay decides to purchase more.

The term of the new contract is also longer than previous deals with the Middle East company, which were previously set at five years.

“The latest deal with Alkozay is meaningful in that for us, it’s a stable revenue source ensured for the long term,” KT&G said in a statement. “We’re expecting it to lay the foundation for growth and profitability in our global tobacco business.”

As part of its expansion initiative, KT&G increased its overseas sales division in July 2019. Approximately half of the Korean tobacco company’s revenues are generated outside Korea. KT&G’s products are present in about 80 countries, a figure the company plans to boost to 100 this year.

Apart from maintaining exports in combustible cigarettes, KT&G is also taking its heat-not-burn devices overseas this year, along with United States-based rival Philip Morris International. Under a mutual deal announced last month, Philip Morris will be the global distributor of the devices for the next three years.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]
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