[Corporate Financing] HDC Hyundai Development Company Raises 375 Billion KRW Through Construction Payment Securitization

5 I-Park Project Sites' Construction Accounts Receivable as Collateral
Will the Acquisition of Asiana Airlines Accelerate?

[Image source=Yonhap News]

[Asia Economy Reporter Lim Jeong-su] HDC Hyundai Development Company has securitized construction accounts receivable to raise 375 billion KRW in funds. This move draws attention as it comes shortly after the Korea Development Bank and the Export-Import Bank of Korea decided to provide 1.7 trillion KRW in support to Asiana Airlines. Some speculate that with the creditors' large-scale support for Asiana Airlines, HDC Hyundai Development's acquisition of Asiana Airlines will accelerate.

According to the investment banking (IB) industry on the 23rd, HDC Hyundai Development raised 375 billion KRW through the securitization of construction payments. The company provided the construction payments receivable from five apartment projects where it is the contractor as collateral (underlying assets) for the loan. When the construction payments are made, the funds are first used to repay the loan, and any remaining money goes to HDC Hyundai Development.

During the fundraising process, HDC Hyundai Development provided credit support such as debt assumption and subordinated loans. This means that if the construction payments are not collected and loan repayment is not properly made, the company will take responsibility for repayment or supply the necessary liquidity for repayment. The lending consortium includes Korea Investment & Securities, Shin Young Securities, Kiwoom Securities, NH Investment & Securities, Mirae Asset Daewoo, Yuanta Securities, and Korea Asset Investment Securities.

There is an interpretation that HDC Hyundai Development's large-scale fundraising is aimed at securing liquidity for the acquisition of Asiana Airlines. The company had planned to raise 2 trillion KRW for the acquisition by the end of April through a 398.7 billion KRW rights offering, 500 billion KRW in cash holdings, and acquisition financing including corporate bonds totaling 1.1 trillion KRW.

However, due to the severe deterioration of Asiana Airlines' situation amid the spread of COVID-19, the acquisition process had been delayed. While postponing the acquisition, HDC Hyundai Development pressured the creditors by demanding support for Asiana Airlines. Amid this, with the creditors deciding to provide 1.7 trillion KRW in support to Asiana Airlines, the prevailing analysis is that HDC Hyundai Development no longer has grounds to delay the acquisition.

It is believed that HDC Hyundai Development's move to securitize construction payments, which was not part of its original acquisition funding plan, is due to a deterioration in creditworthiness. Although HDC Hyundai Development's credit rating is A+, its outlook was recently changed to 'negative.' Depending on performance, the credit rating could be downgraded in the first half of the year. The securitization of construction payments is analyzed to have greater potential for liquidity securing and interest rate reduction compared to other funding methods.

An IB industry official said, "Securitization of construction payments is easier for fundraising and has lower interest rates compared to corporate bond issuance or acquisition financing," adding, "It is a useful funding method in a situation where large-scale fundraising is difficult due to COVID-19." Another official stated, "While it can be seen as HDC Hyundai Development securing operating funds, the fact that they raised large-scale funds without special liquidity burdens leads related industries to view it as intended for the Asiana acquisition."

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