[Corporate Financing] LG Display Refinances 100 Billion Won Led by Shinhan Bank

Credit Rating Plunge and COVID-19 Impact
Corporate Bond Issuance Becomes Difficult, Increasing Bank Dependence
Financial Burden Expected to Widen if Crisis Prolongs

[Asia Economy Reporter Lim Jeong-su] LG Display refinanced an existing loan of 100 billion KRW through a credit facility from Shinhan Bank. Due to a decline in credit rating and difficulties in fundraising caused by the COVID-19 pandemic, dependence on existing banking partners is expected to deepen gradually.

According to the investment banking (IB) industry on the 16th, LG Display borrowed 100 billion KRW from a special purpose company (SPC) established under the lead of Shinhan Bank. The loan has a maturity of three years and a variable interest rate that fluctuates with the market rate. Shinhan Bank issued short-term bonds (ABSTB) with a three-month maturity, using the principal and interest repayments from LG Display as the underlying asset to secure the loan funds. When LG Display repays the principal and interest to the SPC, the funds are used to redeem the short-term bonds.

LG Display received short-term bond purchase commitments and liquidity support from Shinhan Bank. Shinhan Bank agreed to purchase the bonds if investors do not appear when the short-term bonds are refinanced every three months. Additionally, if there is a shortage of funds to repay the short-term bonds, liquidity support up to 1.2 billion KRW will be provided.

The procured funds were used for early loan repayment. LG Display borrowed 200 billion KRW in October 2017 with a three-year maturity and planned to repay half of it, 100 billion KRW, early in April this year. The remaining loan balance of 100 billion KRW will mature in October. An IB industry official explained, "With this fundraising, LG Display extended the maturity of the 100 billion KRW loan scheduled for early repayment by another three years."

Market insiders expect LG Display to rely on banks for refinancing and operational funds for some time. Due to the combined effects of credit rating deterioration from poor performance and the tightening of the financial market caused by COVID-19, market-based fundraising has become difficult. LG Display has not returned to the public market since issuing 390 billion KRW in corporate bonds in February last year.

LG Display's credit rating dropped one notch from AA- to A+ earlier this year. The credit rating outlook remains 'negative,' leaving the possibility of further downgrades. With increased investment in organic light-emitting diode (OLED) technology, borrowings have approached 14 trillion KRW, and the company recorded a net loss of 2.87 trillion KRW last year, significantly worsening its performance.

LG Display is understood to need to refinance or repay about 2 trillion KRW in borrowings within the year, including 410 billion KRW in corporate bonds, amid difficult circumstances. Although it holds 3 trillion KRW in cash equivalents, considering investment expenditures (Capex) of 3 to 4 trillion KRW and operational funding burdens, continued fundraising is necessary.

An industry insider said, "Due to COVID-19, market-based fundraising such as commercial paper (CP) and corporate bonds has become difficult, and without purchase commitments from high-quality financial institutions, even large corporations find it hard to secure funds." They added, "Even if LG Display partially resolves its borrowing issues with bank support for a while, prolonged COVID-19 will significantly increase the burden of securing funds."

A LG Display representative stated, "With large-scale investments nearing completion, the annual EBITDA will be sufficient to cover the investment amount," and added, "We have prepared fundraising strategies for various market scenarios, so there will be no issues in fund management."

This content was produced with the assistance of AI translation services.