[Funding] Hanwha Hotels & Resorts Secures 48 Billion Won Liquidity for Debt Repayment

Seven Consecutive Years of Net Losses Due to Business Slump
COVID-19 Deepens Performance and Financial Deterioration
Concerns Over Loss of Benefit of Time if Debt Ratio Rises Further

[Asia Economy Reporter Lim Jeong-su] Hanwha Hotels & Resorts has raised 48 billion KRW through loan securitization to repay maturing corporate bonds. As it became difficult to issue public corporate bonds due to deteriorating performance and financial conditions, it is interpreted that refinancing funds were raised using loan securitization. There are concerns that if poor performance continues without improving the financial structure, the company could fall into a state of loss of benefit of term.

According to the investment banking (IB) industry on the 3rd, Hanwha Hotels & Resorts recently received a loan of 48 billion KRW from a special purpose company (SPC) established under the lead of Hana Bank. The loan maturity is three years. Although the loan is to be repaid in a lump sum at maturity, early repayment is possible two years after the loan disbursement depending on circumstances.

Hana Bank attached a condition that if Hanwha Hotels & Resorts’ credit rating falls below BB+, the principal and interest of the loan must be repaid early immediately. Currently, Hanwha Hotels & Resorts’ credit rating is BBB+, leaving three notches until the early repayment trigger.

Hanwha Hotels & Resorts Geoje Belvedere Exterior View

However, the current credit rating outlook is 'negative,' and there is a high possibility of further downgrade. This is due to prolonged poor performance causing continued deterioration of financial conditions. NICE Credit Rating changed Hanwha Hotels & Resorts’ rating outlook from 'stable' to 'negative' in April last year, and Korea Ratings did the same in July of the same year.

Hanwha Hotels & Resorts has recorded net losses for seven consecutive years since 2014. In particular, in 2019 and 2020, profitability worsened significantly due to amortization of existing membership deposits, interest expenses on borrowings, and the impact of COVID-19. The net loss was 152.4 billion KRW in 2019 and 138.7 billion KRW in 2020. The loss scale, which used to be around 10 billion KRW annually, expanded significantly.

Additionally, investments increased in premium resort businesses such as Geoje Belvedere, and recognizing borrowings and lease liabilities of subsidiaries caused the debt ratio to rise sharply. The consolidated debt ratio, which was 269% in 2018, soared to 489% at the end of last year.

Last year in the first quarter, the company took steps to improve its financial structure by physically spinning off its food distribution and catering business and selling it to OnePlus, operated by VIG Partners, but the situation did not improve significantly due to performance decline caused by COVID-19 and investments in the Niseko Resort in Japan.

There are also concerns that if financial conditions worsen further, the company could fall into a loss of benefit of term state, requiring early repayment of all existing borrowings at once. When issuing corporate bonds in the past, Hanwha Hotels & Resorts agreed that investors could declare loss of benefit of term if the debt ratio exceeded 500%.

An IB industry official said, "Hanwha Hotels & Resorts has provided collateral such as land, buildings, and affiliate stocks while borrowing, and its funding capacity is gradually weakening," adding, "It is difficult to expect significant performance improvement due to COVID-19, so improving the financial structure through asset sales or capital increase is urgent."

Meanwhile, Hanwha and Hanwha Solutions hold 50.6% and 48.7% stakes respectively as major shareholders of Hanwha Hotels & Resorts.

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