[Funding] Dongducheon Dream Power Issues 25 Billion Private Bonds for Refinancing

Bond Securitization Through Hanyang Securities
Financial Burden Still Excessive Despite Cash Flow Improvement

Panoramic View of Dongducheon LNG Combined Cycle Power Plant

[Asia Economy Reporter Lim Jeong-su] Dongducheon Dream Power, a private LNG combined cycle power plant operator, has issued private bonds worth 25 billion KRW. The funds will be used to repay maturing borrowings. Although Dongducheon Dream Power's cash flow has improved recently due to increased LNG power generation demand and cost reduction, its financial burden has not significantly decreased due to excessive borrowings and the resulting interest expenses.

According to the investment banking (IB) industry on the 29th, Dongducheon Dream Power recently issued private bonds worth 25 billion KRW underwritten by Hanyang Securities. The funds were raised by securitizing the bonds purchased through a special purpose company (SPC) established by Hanyang Securities. The maturity of the issued bonds is one year.

The raised funds are reportedly intended for repayment of borrowings. This is to repay private bonds issued in the past that have matured. Dongducheon Dream Power has raised operating funds by issuing private bonds mainly to small and medium-sized securities firms such as Hanyang Securities, KTB Investment & Securities, DS Investment & Securities, and BNK Investment & Securities. Due to deteriorating cash flow and financial conditions, credit ratings have worsened, concentrating private bond maturities into short-term bonds of less than one year. Borrowings have been extended using payment guarantees and pledged shares held by major shareholders such as Korea Western Power and Samsung C&T.

The largest shareholder of Dongducheon Dream Power is Korea Western Power, holding 33.6% of shares, and the second-largest shareholder is Samsung C&T with 31.2%. HDC (14.2%), Busan Bank (11.0%), and GS Energy (10.0%) also participate as shareholders. Preferred shares are divided among Samsung C&T (33.9%), Korea Western Power (33.6%), HDC Hyundai Development Company (15.5%), Busan Bank (12.0%), and GS Energy (2.0%).

Recently, cash flow from operations has improved, somewhat easing the financial burden. Since 2019, profitability has improved based on cost reduction efforts and carbon emission rights sales, generating operating profits exceeding 50 billion KRW annually for two consecutive years. As cash flow improved, borrowings decreased from 1.1 trillion KRW to around 1 trillion KRW over two years.

However, most of the operating profit is used for financial expenses, slowing financial improvement. Therefore, borrowings still exceed 1 trillion KRW. The ratio of borrowings to operating profit, indicating repayment ability, approaches 19 times. The debt ratio is 400%, and borrowing dependency reaches 73.5%.

An IB industry official said, "Although EBITDA of about 130 billion KRW is generated annually, after deducting depreciation expenses of around 75 billion KRW and financial costs of about 50 billion KRW, profitability is minimal," adding, "It is difficult to expect significant financial improvement in the short term." The official predicted, "Therefore, fundraising for refinancing borrowings will continue."

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