[Funding] Dongbang to Improve Financial Structure through Rights Offering to Shareholders

Sales Increase Related to Coupang and Homeplus Due to COVID-19 Impact
Annual Financial Costs of 15 Billion KRW Incurred from Excessive Borrowing
Debt Ratio Reduced to 242% After Capital Increase Completion

[Asia Economy Reporter Hyungsoo Park] Among domestic logistics companies, Dongbang, which has a relatively high debt ratio, has launched a rights offering to improve its financial structure.

According to the Financial Supervisory Service's electronic disclosure system on the 15th, Dongbang will raise 30.7 billion KRW through a rights offering allocating 0.16 new shares per existing share, followed by a general public offering of unsubscribed shares. Of this, 27 billion KRW will be used to repay debt, and 3.7 billion KRW will be used as operating funds. The planned issue price of the new shares is 3,835 KRW.

Dongbang operates a logistics business by establishing a network system through major ports and logistics hubs nationwide. Based on port stevedoring and land and sea transportation businesses, it generates sales through heavy cargo transportation and installation, third-party logistics (3PL), container terminal, and logistics center operations. Major customers include POSCO (13.57%), Coupang (12.59%), Homeplus (5.10%), and Hyundai Heavy Industries (3.12%).

In the first half of this year, Dongbang achieved sales of 285 billion KRW and operating profit of 12.4 billion KRW. Although sales decreased by about 7% compared to the same period last year, operating profit increased by 38%. Profitability improved due to increased sales from Coupang and Homeplus amid the COVID-19 impact. The consolidated operating profit margin steadily increased from 2.69% in 2018 to 3.31%, 4.15%, and 4.34% up to the first half of this year.

Aside from profitability improvement, Dongbang's financial stability remains relatively weak. As of the end of the first half of this year, consolidated short-term borrowings amount to 64.6 billion KRW, including 13 billion KRW in liquidity bonds and 10.2 billion KRW in financial lease liabilities. Adding long-term borrowings of 212 billion KRW, total borrowings reach 276.7 billion KRW. Approximately 15 billion KRW is spent annually on financial costs. The consolidated debt dependency ratio increased from 48.59% in 2018 to 52.25% in the first half of this year, which is considered a negative factor in terms of financial stability.

The debt ratio stands at 323%, higher than Hanjin (167%), CJ Logistics (135%), and Sebang (35%). It is expected that after completing the capital increase and repaying high-interest private bonds and commercial papers, the debt ratio will decrease to around 242%.

Dongbang also provides payment guarantees and collateral for borrowings through credit enhancement and liquidity supply to affiliates and other related parties. As of the end of this half-year, it has provided payment guarantees of 1.2 billion KRW each to its affiliate Incheon International Ferry Terminal Operations and other related party Dongbang S&D. Additionally, for Pyeongtaek Dongbang i-Port, in which Dongbang has invested, a bailout financing plan scheduled in January 2017 included an investment amount of 25.2 billion KRW. There remains a possibility of contingent liabilities materializing due to these payment guarantees.

The foreign currency asset and liability-related profit and loss are significantly affected by exchange rates. As of the first half, a 10% increase in the KRW-USD exchange rate would result in an additional loss of 2.4 billion KRW. Conversely, if the exchange rate declines, the profit scale could increase.

Due to the ongoing burden of support related to investment plans in affiliates, other related parties, and Pyeongtaek Dongbang i-Port Co., there is potential for increased interest expenses on additional borrowings. There are considerable concerns about recognizing impairment losses on additional equity investments and the possibility of net income turning negative again due to the realization of payment guarantees amid deteriorating business environments of other subsidiaries and related parties. Investors are advised to take note of these risks.

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