[Funding] Kolon Industries Secures 50 Billion Loan to Improve Debt Maturity Structure

[Asia Economy Reporter Lim Jeong-su] Kolon Industries has raised 50 billion KRW in funds ahead of its return to the public corporate bond market after four years. This is interpreted as an effort to improve the maturity structure of its borrowings by repaying short-term debt.

According to the investment banking (IB) industry on the 23rd, Kolon Industries will receive a loan of 50 billion KRW on the 25th from a special purpose company (SPC) established under the sponsorship of Woori Bank. The maturity is three years, with repayment divided into five installments. Woori Bank, the lead arranger of the fund raising, provided credit support to the SPC in the process of securitizing the loan executed to Kolon Industries.

Kolon Industries is known to plan to use the borrowed funds to repay existing borrowings. As of the end of the first quarter of this year, Kolon Industries’ consolidated borrowings amounted to approximately 1.88 trillion KRW. Apart from facility funds borrowed from the Korea Development Bank, most of the borrowings are funds borrowed from banks such as Woori Bank. The outstanding corporate bonds as of this date consist solely of 20 billion KRW worth of privately placed bonds issued in 2019 with a three-year maturity.

Kolon Industries’ borrowings increased rapidly since 2017. The financial burden grew as large amounts of cash were invested in chemical materials sector facility expansion, industrial complex development including the Magok Future Technology Center in Seoul, and equity investments. The lawsuit with U.S. DuPont related to aramid, a steel fiber, which increased the burden of settlement payments and fines, also contributed to the increase in borrowings.

As a result, free cash flow (FCF) deficits persisted in recent years, and borrowings based on separate financial statements increased from 1.3 trillion KRW in 2015 to about 1.72 trillion KRW at the end of 2019. However, as investments were completed and settlement payments and fines were finalized, borrowings decreased to approximately 1.34 trillion KRW by the end of the first quarter of this year.

The successful sale of SKC Kolon PI (now PI Advanced Materials), a joint venture established with SK Group, brought in more than 300 billion KRW in equity sale proceeds, which also helped improve the financial structure. In March last year, SKC and Kolon Industries sold 54.06% of PI Advanced Materials shares to the private equity fund Glenwood Private Equity for 608 billion KRW.

Although the financial structure has partially improved, the burden of short-term borrowings remains significant. As of the end of the first quarter on a consolidated basis, short-term borrowings and current portion of long-term debt that must be repaid or refinanced within one year exceed 1.4 trillion KRW. The short-term repayment and refinancing burden accounts for 75% of total borrowings (1.88 trillion KRW).

An IB industry official said, "Kolon Industries is expected to continue improving the maturity structure of its borrowings through corporate bond issuance and other means," adding, "With recent improvements in the materials industry, performance is improving, and the financial structure will improve accordingly."

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