[Funding] IS Dongseo Accelerates 'Debt Burden' Following Business Structure Reorganization Results

[Asia Economy Reporter Lim Jeong-su] IS Dongseo has been increasing its fundraising by issuing commercial papers (CP) and private bonds since May. While diversifying into environmental businesses such as waste treatment, its borrowings have surged significantly, but its cash-generating ability has rather weakened, leading to an increasing debt burden.

According to the investment banking (IB) industry on the 17th, IS Dongseo issued private bonds worth 100 billion KRW underwritten by Korea Investment & Securities on the same day. The maturity is 2 years, and the issuance interest rate is 4.0%. This is a relatively large-scale market fund raising since issuing private bonds worth 20 billion KRW in October last year.

It is interpreted as fundraising to repay private bonds maturing on the 24th. IS Dongseo has to respond to the maturity of private bonds worth 80 billion KRW issued in 2019.

In the process of refinancing this private bond, IS Dongseo increased the bond issuance amount by about 20 billion KRW compared to the maturity repayment amount. Since the bond issuance interest rate is about 60 basis points lower than the bond interest rate to be repaid (4.60%), it is analyzed that low-cost financing was increased.

At the beginning of this month, IS Dongseo issued commercial papers (CP) worth 50 billion KRW. After fully repaying CPs in October last year, it did not issue CPs, which are ultra-short-term funds, for a while but recently resumed short-term financing.

This is interpreted as due to the increased borrowing burden during the recent years of business restructuring and investment expansion. IS Dongseo acquired shares of Inseon ENT, a waste treatment company, in 2019. The following year, it conducted a paid-in capital increase in Inseon ENT and expanded environmental sector investments by acquiring Youngheung Industrial Environment and Paju B&R Co., Ltd.

Last year, it continued to increase related investments by acquiring shares of Kolon Environmental Energy, Koantec, and Saehan Environment. The funds injected into Kolon Environmental Energy for the capital increase to acquire Koantec and Saehan Environment alone approached 150 billion KRW.

The amount of funds IS Dongseo invested in the environmental business last year reached 236 billion KRW. Previously, in 2017, it acquired Ato Study Co., Ltd., a study room operator, and in 2018, Bounce Co., Ltd., an infant play facility operator.

To raise investment funds, IS Dongseo sold 54.7% of its shares in Korea Rental Co., Ltd. for 76 billion KRW in 2019, and in February last year, spun off the Inus business and sold it to the private equity (PE) firm E&F PE for 217 billion KRW.

However, it could not prevent the rapid increase in borrowing burden. IS Dongseo's consolidated borrowings were about 777 billion KRW in 2018 before it began to increase investments in earnest, but rose to about 1.5 trillion KRW by the end of last year. Net borrowings excluding cash equivalents increased from 557 billion KRW to 1.01 trillion KRW during the same period.

Increasing land investments for self-developed projects also led to borrowing expansion. IS Dongseo increased investments for projects such as Goyang Deogeun District, Daegu Cheongsol District, Daegu Sinam-dong, and Anyang Knowledge Industry Center, recording a cumulative free cash flow (FCF) deficit of over 300 billion KRW in the past two years.

Despite business restructuring, cash-generating ability declined. IS Dongseo's consolidated EBITDA increased to 457 billion KRW in 2018 but decreased to about 261.2 billion KRW last year after business restructuring.

An IB industry official said, "There is a high possibility that housing sales projects underway in Daegu and Ulsan will be successfully completed," adding, "If cash inflows occur through sales projects, the financial structure could improve somewhat."

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