[Funding] Heeseong Catalyst's Reason for Starting Receivables Factoring with Hyundai Motor

Sold 18.6 Billion KRW of Accounts Receivable to Hyundai Commercial
Maintaining Debt-Free Policy While Securing Liquidity
Impact of Increased Working Capital Needs Due to Rapid Sales Growth

[Asia Economy Reporter Lim Jeong-su] Heesung Catalyst, an affiliate of the LG group, raised a small amount of funds by factoring (discount sale) the accounts receivable it will receive from Hyundai Motor Company. Factoring to secure liquidity is expected to expand as part of the process of increasing corporate value.

According to the investment banking (IB) industry on the 14th, Heesung Catalyst raised 18.5 billion KRW by factoring Hyundai Motor's accounts receivable to Hyundai Commercial, a financial company affiliated with the Hyundai Motor Group. Hyundai Commercial purchased the accounts receivable through a special purpose company (SPC) and then issued short-term bonds backed by these receivables to raise funds for the purchase.

Hyundai Commercial will receive payment from Hyundai Motor in November and repay the principal and interest of the short-term bonds. Bookook Securities managed the securitization of Heesung Catalyst's accounts receivable.

Heesung Catalyst's factoring is interpreted as a measure to secure operating funds. Heesung Catalyst is known for using a conservative financial strategy. Since its establishment, it has rarely taken external loans such as bank loans or corporate bond issuance. It maintained a zero-debt policy until 2017.

From 2018, borrowings began to increase, reaching 230 billion KRW as of the end of last year. However, most of the borrowings are trade finance arising from import and export processes. Other loans or market borrowings have not increased.

While maintaining a conservative financial strategy, operating fund needs have increased recently due to rapid sales growth. Sales, which fluctuated around 1 trillion KRW until 2016, rapidly increased to 1.945 trillion KRW by the end of last year.

An IB industry official said, "As sales rapidly increase, the burden of working capital is also rising," adding, "If funds are needed, it is highly likely that short-term liquidity will continue to be secured through accounts receivable securitization."

Heesung Catalyst is a manufacturer of catalysts for automotive exhaust gas purification. It is a domestic monopoly company with Hyundai and Kia Motors as its key customers. Hyundai and Kia Motors account for more than half of its sales. As of the end of last year, about 65% of its accounts receivable were from Hyundai and Kia Motors.

Based on stable customers, Heesung Catalyst's corporate value has rapidly increased recently, supported by environmental regulations. Its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) jumped from 70 billion KRW to 108 billion KRW over the past three years, resulting in an estimated corporate value increase of more than 40%.

Meanwhile, Heesung Catalyst's 100% equity is divided among BASF Catalysts Asia (50%), Heesung Electronics (37.99%), Koo Bon-neung, Chairman of Heesung Group (6.45%), and Koo Kwang-mo, Chairman of LG (5.56%).

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