SK Group Issues 3.3 Trillion Won in Corporate Bonds in One Month as Bond Market Eases

47% of Last Year's Annual Issuance
For Repayment of High-Interest CP and Other Borrowings
Impact of Cash Flow Deterioration in Affiliates Including SK Hynix

[Asia Economy Reporter Lim Jeong-su] SK Group affiliates are aggressively raising funds as the bond market stabilizes. This is because they need a large amount of funds to repay borrowings and other uses, having postponed fundraising for a long time due to market instability. The deterioration of SK Hynix’s cash flow, caused by large-scale losses amid the semiconductor market downturn, also influenced the short-term large-scale fundraising.

According to the investment banking (IB) industry on the 22nd, SK Group issued corporate bonds worth approximately 3.36 trillion KRW within about one month from mid-January. Of this, 2.9 trillion KRW was issued as public bonds through a demand forecasting process, and the remaining 460 billion KRW was issued as private bonds. This amount corresponds to 47% of the 7.0838 trillion KRW worth of corporate bonds issued throughout last year, issued in just over a month recently.

The gap with other major conglomerates is also significant. LG Group issued corporate bonds worth 1.37 trillion KRW this year, about 1.99 trillion KRW less than SK. Lotte Group, whose fund demand surged significantly due to financial support for Lotte Construction, issued corporate bonds worth 1.8 trillion KRW during the same period. To support Lotte Construction, which faced extreme liquidity concerns, group affiliates such as Lotte Chemical raised external funds, increasing the volume of corporate bond issuance.

Among SK Group affiliates, SK Hynix issued 1.39 trillion KRW worth of bonds, accounting for over 40% of the group’s total corporate bond issuance. SK Geocentric, SK Incheon Petrochem, and SK Telecom each issued 300 billion KRW worth of public bonds, while SK Rent-a-Car (260 billion KRW), SK Gas (220 billion KRW), and SK Chemicals (200 billion KRW) each issued corporate bonds in the 200 billion KRW range. SK Ecoplant successfully issued 200 billion KRW worth of public bonds amid credit concerns for construction companies due to unsold inventory. Affiliates such as SK Magic, SK Rent-a-Car, SK Plasma, and SK Advanced issued private bonds in small units ranging from 5 billion to 20 billion KRW.

SK Group’s large-scale corporate bond issuance is the result of pushing forward long-term fundraising that had been postponed since last year’s Legoland incident. An IB industry official said, “In the fourth quarter of last year, bond market interest rates soared, so major SK Group affiliates responded to urgent funding needs by issuing short-term commercial papers (CPs).” He added, “A significant amount of borrowings are maturing this year and need to be repaid.”

SK Hynix recently stated in its securities registration statement that the purpose of fundraising through large-scale corporate bond issuance was to repay borrowings. Of this, 970 billion KRW is for repaying maturing corporate bonds, and 315 billion KRW is for repaying commercial papers (CPs). All CPs were issued last October at a high interest rate in the mid-5% range. By issuing public bonds at an interest rate in the 4% range, the burden of short-term high interest rates was alleviated.

SK Hynix Cheongju Plant

The decline in cash flow due to deteriorating performance also led to large-scale corporate bond issuance. SK Hynix recorded a loss of 1.7 trillion KRW in the fourth quarter of last year due to the semiconductor market downturn. The international credit rating agency Standard & Poor’s (S&P) recently changed SK Hynix’s credit rating outlook from ‘stable’ to ‘negative,’ stating, “Operating cash flow (OCF), which was about 15 trillion KRW last year, is expected to decrease to around 5 to 6 trillion KRW this year, and even with reduced capital expenditures, free cash flow (FCF) is expected to record a deficit of 1 to 3 trillion KRW this year.”

SK Group’s aggressive fundraising is expected to continue for some time. An IB industry official said, “SK Group has issued corporate bonds worth 7 to 10 trillion KRW annually over the past five years,” adding, “This year, many existing corporate bonds are maturing, so corporate bond issuance for refinancing will increase significantly.” He also predicted, “Interest expenses from bond issuance will increase as the funding interest rate has risen by more than 1 percentage point compared to the past.”

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