[Funding] Lotte Group Relies on 'Private Bonds and CP' Amid Concerns Over Unsubscribed Public Bonds

Lotte Shopping and Hotel Lotte Accelerate Refinancing and Operating Fund Procurement
Lotte Chilsung, Construction, and GRS Also Issue Private Bonds
Concerns Rise Over Retail Companies' Performance Amid COVID-19 Crisis

▲Lotte Tower panoramic view

[Asia Economy Reporter Lim Jeong-su] Lotte Group affiliates are aggressively raising funds through private bonds, commercial paper (CP), and loan securitization. This is interpreted as using a detour route as the possibility of public bond undersubscription increases due to concerns over deteriorating performance caused by the prolonged COVID-19 pandemic.

According to the investment banking (IB) industry on the 21st, Lotte Shopping issued private bonds worth 50 billion KRW on the 20th, underwritten by IBK Investment & Securities. The bonds consist of 30 billion KRW with a 5-year maturity and 20 billion KRW with a 10-year maturity, with bond yields of 2.203% and 2.584% respectively. IBK Investment & Securities purchased all the bonds and then sold them to institutional investors. Previously, Lotte Shopping issued long-term CP worth 200 billion KRW with a 3-year maturity to prepare operating funds while responding to the maturity of CP worth 250 billion KRW.

Hotel Lotte raised 50 billion KRW through loan securitization on the 10th. The loan has a 3-year maturity, and Kookmin Bank, the underwriter, provided credit guarantees and sold the securitized bonds to institutional investors. Additionally, on the 20th, Hotel Lotte issued long-term CP worth 300 billion KRW with a 2 year and 6 months maturity to repay short-term borrowings. Along with Lotte Shopping, a total of 500 billion KRW worth of CP was issued within a week.

Private fund raising by other group affiliates is also continuing. Lotte Construction raised 20 billion KRW on the 16th by securitizing a 2-year maturity loan. Shinhan Bank underwrote and provided credit guarantees before issuing securitized bonds. It is understood that Lotte Construction secured refinancing funds as the maturity of existing borrowings approached.

Food service franchise company Lotte GRS also issued private bonds worth 30 billion KRW with a 2-year maturity on the 17th. Lotte Chilsung Beverage issued private bonds worth 80 billion KRW last month to raise operating funds. They included a condition to forcibly repay the borrowings early if the credit rating falls by two or more notches from the current AA rating.

Lotte Group’s increase in private fund raising instead of public bond issuance, which was a major funding method, is interpreted as due to growing concerns over public bond undersubscription. As COVID-19 prolongs, negative outlooks dominate for Lotte Group’s core businesses such as distribution, hotels and duty-free shops, and food and beverage sectors.

Lotte Shopping’s operating profit in the first quarter of this year dropped to a quarter of last year’s level, continuing a net loss trend for three consecutive years. Borrowings decreased to 7.8 trillion KRW but then rose again to 11.7 trillion KRW. Hotel Lotte also saw an increase in net loss and borrowings. Lotte Chilsung Beverage turned to a deficit this year with a net loss.

An IB industry official said, "Although Lotte Group affiliates’ credit ratings remain strong at the AA level, the uncertainty over how long COVID-19 will continue makes investors’ views on bonds of large distribution companies less positive," adding, "Lotte Group, which has a large distribution proportion, shows a pattern of continuously raising small amounts of funds whenever there is investment demand in the market."

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