[Funding] Samsung C&T Secures 605 Billion KRW Through Samsung Electronics-Originated Construction Payment Securitization

[Asia Economy Reporter Lim Jeong-su] Samsung C&T has raised a large amount of funds using construction payment claims receivable from Samsung Electronics as collateral. In the absence of the group head, construction orders from Samsung Electronics, including the Pyeongtaek semiconductor plant, have become a major source of revenue for Samsung C&T, which is suffering from a drought in orders, while also serving as a key means of financing.

According to the investment banking (IB) industry on the 30th, Samsung C&T recently selected KB Securities as the lead manager and raised 605 billion KRW through securitization of construction accounts receivable. Samsung Electronics receives the construction payment through a special purpose company (SPC), and the receivables (construction payment claims) are securitized by issuing asset-backed bonds, a type of accounts receivable securitization. The construction payments made by Samsung Electronics to the SPC effectively serve as collateral for the borrowing. The payment due date for the construction payments is known to be in April.

An IB industry official said, "Samsung Electronics holds the highest credit rating in Korea, so the construction payments made by Samsung Electronics are considered safe assets with no repayment risk," adding, "Samsung C&T is also viewed as having virtually no risk of payment default as a group holding company."

Through the securitization of construction payments, Samsung C&T can reduce interest expenses on borrowings. The issuance rate of the asset-backed bonds from the construction payment securitization is understood to be around 1.2%, which is comparable to the yield on government bonds. Additionally, Samsung C&T can secure funds in advance before the construction payments from Samsung Electronics are made and use them for debt repayment or operating capital.

The burden of issuing public corporate bonds amid the absence of the group head is also cited as a reason behind the large-scale securitization of construction payments. Samsung C&T entered the public corporate bond market in November last year for the first time in about three years since 2017, raising 250 billion KRW. During this period, it has used construction payment securitization and short- and long-term bank borrowings as key financing methods.

Construction payment securitization is expected to remain a core financing method for Samsung C&T this year as well. This is due to the continued orders from Samsung Electronics for the Pyeongtaek plant and other projects, as well as the group’s ongoing reluctance to issue corporate bonds.

As of the end of the third quarter last year, Samsung C&T was undertaking approximately 7.5 trillion KRW worth of contract construction from Samsung Electronics. Excluding about 6.4 trillion KRW in progress payments, the remaining contract balance was estimated at around 1.4 trillion KRW. Considering additional orders in the fourth quarter, the construction balance is presumed to have increased significantly. An industry official said, "Since orders from Samsung Electronics continue, it would be efficient to maximize the use of construction payment securitization considering financing costs and ease of funding."

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