[Funding] LG-affiliated Pamhanong, 110 Billion KRW Receivables Securitization to Nonghyup

[Asia Economy Reporter Lim Jeongsu] Farm Hannong, an agricultural materials company that is a 100% subsidiary of LG Chem, is raising funds by securitizing accounts receivable from supplying fertilizers and pesticides to Nonghyup Economic Holdings. The amount of funds raised is expected to reach a total of 110 billion KRW by November this year.

According to the investment banking (IB) industry on the 21st, Farm Hannong recently raised 20 billion KRW by selling accounts receivable to a special purpose company (SPC) established under the sponsorship of Shinhan Bank. The SPC issued securitized notes with a maturity of seven months, using the accounts receivable acquired from Farm Hannong as the underlying assets, to secure loan funds.

Farm Hannong plans to transfer accounts receivable worth a total of 110 billion KRW to the SPC by November this year. Through this method, it will sequentially raise an additional 90 billion KRW in funds by November.

The accounts receivable transferred to the SPC are from supplying agricultural materials such as pesticides and fertilizers to Nonghyup Economic Holdings. Farm Hannong maintains a fixed long-term trading relationship with Nonghyup, so accounts receivable from Nonghyup are generated steadily.

Recently, Farm Hannong's dependence on Nonghyup sales has been increasing. In Korea, pesticides are acquired by Nonghyup through bidding and supplied to farmers or distributed through general wholesale and retail (market) channels, but the distribution share through Nonghyup has overwhelmingly increased recently.

While Farm Hannong is at a disadvantage in price negotiation power with Nonghyup, it relies mostly on imported raw materials, making it vulnerable to exchange rate and raw material price volatility. The proportion of raw material costs in the cost structure is quite high, reaching 70-80%. Even if the dollar value or raw material costs rise in the short term, it is difficult to pass these increases on to the supply prices of fertilizers or pesticides.

Due to price negotiation power and cost structure, Farm Hannong faces increased operational funding burdens when volatility in the foreign exchange or raw material markets rises. For this reason, it is expected that Farm Hannong will continue to raise funds by securitizing Nonghyup accounts receivable.

An IB industry official said, "Farm Hannong, as a 100% subsidiary of LG Chem, has high creditworthiness and uses corporate bond issuance and Nonghyup Bank loans as major funding methods," adding, "It will continue to utilize accounts receivable securitization to manage temporary operational funding burdens and improve its financial structure."

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