Concerns Over COVID Resurgence Prompt Domestic Companies' Emergency Response: "We Are Doing Everything Possible"

Corporate Bond Issuance, Paid-in Capital Increase, Asset Sales, and Workforce Adjustment
Hyundai and Kia Return to Corporate Bond Market in First Half of This Year
SK Group Increases Corporate Bond Issuance for EV Battery Investment
Airline Industry Expands Capital through Paid-in Capital Increase... Display Sector Prepares to Exit LCD Non-Core Business

[Asia Economy Reporters Su-yeon Woo, Je-hoon Yoo, Yoon-joo Hwang] As the second wave of the novel coronavirus infection (COVID-19) increases uncertainty in the business environment, companies have jumped into securing ammunition to prepare for the worst. While expanding financing through the capital market by increasing corporate bond issuance and skipping interim dividends, they are also pulling out cards such as unnecessary asset sales and workforce restructuring to minimize cash outflows. This reflects a focus on securing cash to build basic strength and maintain financial soundness to prepare for a prolonged COVID-19 situation.

According to the Korea Financial Investment Association on the 22nd, domestic companies issued corporate bonds worth 11.435 trillion KRW in May this year, a 54% increase compared to the previous month. Domestic companies, which have entered emergency management to prepare for business uncertainty, have increased corporate bond issuance, and the monthly corporate bond issuance amount has been rising for two consecutive months since April.

This is because companies that had left the corporate bond market for a while due to the renewed spread of COVID-19 are returning to the market one after another. In the first half of this year, Hyundai Motor issued corporate bonds worth 600 billion KRW for the first time in four years since 2016, and Kia Motors issued 600 billion KRW for the first time in three years since 2017. Hyundai Motor and Hyundai Mobis decided to skip interim dividends this year to secure short-term liquidity.

SK Group is also increasing capital market financing to offset losses in its core refining business and continue investing in its new growth engine, electric vehicle batteries. Affiliates such as SK Energy (550 billion KRW), SK Lubricants (300 billion KRW), SK General Chemical (400 billion KRW), and SK Incheon Petrochem (200 billion KRW) have been issuing or plan to issue corporate bonds sequentially since April.

The aviation industry, hit hard by the impact of COVID-19, is also expanding capital through short-term borrowing and rights offerings. Four airlines?Korean Air (1 trillion KRW), Jeju Air (170 billion KRW), T’way Air (64.2 billion KRW), and Fly Gangwon (16.5 billion KRW)?are planning rights offerings, while Air Seoul borrowed 30 billion KRW from its parent company, Asiana Airlines.

Not only securing cash but also disposing of non-core businesses to fill their coffers is increasing among companies. The display industry is scaling back from the LCD business. LG Display plans to largely reduce domestic LCD TV panel production by the end of this year as part of LCD business restructuring, and in March, Samsung Display announced it would halt operations of its 7th and 8th generation LCD production lines at its Asan plant in Chungnam and Suzhou, China, by the end of this year. In the chemical industry, LG Chem recently accelerated business restructuring by selling its LCD polarizer business. This is to effectively exit the LCD business and focus capabilities on future growth engines such as OLED materials and electric vehicle battery businesses.

Sales of tangible assets such as real estate and facilities are also accelerating. Recently, Korean Air sold its company housing located in Jeju Island and is pushing for the sale of land in Songhyeon-dong, Jongno-gu, Seoul. Korea GM announced plans to sell a logistics center site near its Incheon Bupyeong plant. Ssangyong Motor also recently sold non-core assets such as its service center in Guro-gu, Seoul, and logistics center in Busan.

LG Display is reportedly working on selling one plot (about 92,000 square meters) of its 2nd and 3rd plants within the Gumi plant. However, after suspending operations of the 2nd and 3rd plants during the 2017 restructuring process and recently attempting to sell the land, negotiations have stalled due to a lack of suitable buyers.

Domestic companies are entering a long-term battle to respond to COVID-19 as a constant rather than a variable. Despite external financing and asset and business disposals, if a liquidity shock occurs, companies will have no choice but to pull out the last card of workforce reduction. So far, they have been covering this by employees returning or cutting wages, but if the situation prolongs, the possibility of workforce restructuring remains open.

The first industry where restructuring talks arise is the refining industry, which has been most affected by COVID-19. GS Caltex, which has institutionalized voluntary retirement since last year, has been having employees return 10-15% of their salaries according to rank since March. Hyundai Oilbank has decided to reduce unnecessary expenses by up to 70% and executives have voluntarily agreed to return 20% of their wages.

In the aviation industry, signs of restructuring are also emerging. Except for Eastar Jet, most airlines are implementing paid or unpaid leave through employment retention subsidies, but there are forecasts that restructuring may materialize after the support ends in October.

Joo-won, head of the Economic Research Office at Hyundai Research Institute, said, "Industries such as aviation and shipping, which are at a critical point, have started restructuring for survival, and major industries such as semiconductors and automobiles reflect intentions to strengthen competitiveness through this opportunity. Such austerity management may improve around next year, but industries heavily affected by COVID-19, such as aviation, are likely to face a prolonged situation."

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