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Merger of Polyethylene Operations and Its Influence On SDK's Performance

May 21, 2003

Showa Denko K.K. (SDK) and its consolidated subsidiary, Japan Polyolefins Co., Ltd. (JPO), reached agreement with Japan Polychem Corporation of the Mitsubishi Chemical Corporation Group to merge the polyethylene operations of JPO and Japan Polychem, and establish a new joint venture company “Japan Polyethylene Corporation” on September 1, 2003.

The new company will become SDK’s affiliate to which the equity method will be applied.

SDK's performance forecast for 2003, which was announced on February 18, 2003, will see no change because we already took into account the possible influence of the merger of polyethylene operations on our performance. (As of February 18, 2003, we forecast net sales of ¥665 billion, operating income of ¥38 billion, ordinary profit of ¥26.5 billion, and net income of ¥10 billion.)

Meanwhile, the merger will affect SDK's consolidated balance sheet. Specifically, total assets and interest-bearing debt will decrease by approximately ¥33 billion and ¥22 billion, respectively, from the levels at the end of December 2002.

Details of the merger plan are described in the attached news release.