Emergency Funding Issues Following Rating Downgrade of Three Major Movie Theater Companies

CJ CGV Faces Failure in Corporate Bond Demand Forecast
Lotte Cultureworks and Megabox Also
Face Consecutive Rating Downgrades Amid Earnings Decline

[Asia Economy Reporter Park Jihwan] CJ CGV, the No.1 movie theater operator in South Korea, has faced a crisis in fundraising after a disastrous demand forecast (pre-subscription) for corporate bonds. The prolonged impact of the novel coronavirus infection (COVID-19) has continued to worsen performance, leading the market to view the business outlook pessimistically. Recently, all three major movie theater companies are expected to inevitably face deteriorating financial conditions due to credit rating downgrades.

According to the investment banking (IB) industry on the 9th, CJ CGV experienced a large-scale unsold issue in the demand forecast for issuing 200 billion KRW of 3-year maturity corporate bonds on the 7th.

Only 1 billion KRW worth of purchase orders came in at the top end of the desired interest rate band of 3.8%. The failure is attributed to the decline in creditworthiness and continued bleak performance due to the COVID-19 aftermath. On the 30th of last month, NICE Credit Rating downgraded CGV’s credit rating from 'A' to 'A-'. They maintained a 'negative' credit rating outlook, citing the distant timing of performance recovery. If no clear improvement occurs, there remains a possibility of further downgrade to 'BBB', the lowest investment-grade rating. On the same day, Korea Ratings also lowered the rating from 'A' to 'A-'.

The main reason behind the rating adjustments by credit rating agencies is the significant impact on performance. CJ CGV’s cumulative consolidated sales for the third quarter were 440.1 billion KRW, a 70% decrease compared to the same period last year. Operating losses reached 299 billion KRW by September. As of the end of September, CJ CGV’s debt dependency ratio was 74.7%, and debt ratio was 1118%, nearly doubling from the previous year. NICE Credit Rating stated, "It is expected to record net losses exceeding 100 billion KRW per quarter," and added, "Without significant improvement in operating performance, securing soundness through capital expansion alone will be difficult."

Red flags have also been raised regarding the fundraising situations of other movie theater operators facing similar large-scale performance declines. Lotte Cultureworks and Megabox Joongang reported operating losses of 128.9 billion KRW and 49.7 billion KRW respectively through the third quarter of this year. On the 7th, Korea Corporate Rating downgraded Lotte Cultureworks, which operates Lotte Cinema, from 'A+' to 'A', and Megabox Joongang’s unsecured bond credit rating from 'A-' to 'BBB+'. Both companies maintained a 'negative' outlook. With widespread credit rating downgrades across the industry, not only will borrowing costs rise, but the ability to raise funds itself may become difficult.

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