Lotte Card Raises 300 Billion KRW Operating Funds Through Accounts Receivable Securitization

Utilizing 500 Billion KRW Credit Card Receivables
As an Alternative Funding Method Amid Rising Interest Rates on Asset-Backed Bonds

Lotte Card raised 300 billion KRW in funds by securitizing credit card receivables. Credit card receivables securitization is used as a means to lower funding costs while diversifying funding sources.

According to the investment banking (IB) industry on the 30th, Lotte Card issued 300 billion KRW worth of asset-backed commercial paper (ABCP) with DB Financial Investment and others as lead managers. The method involves transferring Lotte Card’s sales receivables used by credit card members to a financial company trust and securitizing the sales receivables through a special purpose company (SPC). The SPC uses the sales receivables trust beneficiary certificates as the underlying assets (repayment source) for the ABCP.

The underlying assets of the ABCP consist of about 500 billion KRW worth of lump-sum and installment receivables, cash service usage fees, and revolving payment receivables used by 368,000 Lotte Card credit card members. When credit card members repay their respective credit card usage amounts according to the repayment schedule, this money is primarily used to repay the securitized borrowings. After repaying principal and interest to ABCP investors, the remaining funds revert back to Lotte Card.

Along with issuing bonds (credit finance bonds), Lotte Card has utilized asset securitization as a major funding method. In June, it also raised 300 billion KRW through the same method with ING Securities Seoul branch as the lead manager. It secures about 600 billion to 1 trillion KRW annually through asset securitization two to three times a year.

Recently, as credit finance bond interest rates have risen, the incentive for card companies and capital companies (credit specialized financial companies) to securitize assets has increased. Credit specialized financial companies, which do not have deposit functions, mostly raise funds by issuing bonds. However, when credit finance bond interest rates are high, they issue more asset-backed securities (ABS) that have lower interest rates and allow long-term funding. The credit finance bond interest rate, which was in the 3% range in March this year, has recently risen to the mid-4% range.

A bond market official said, "As credit finance bond interest rates rise, concerns about deteriorating profitability for credit finance companies that have to issue bonds to use as operating funds are growing," adding, "Recently, credit finance companies are striving to reduce funding costs through asset securitization and asset sales."

Meanwhile, Lotte Card announced that it recorded a net profit of 365.7 billion KRW for the cumulative third quarter of this year, a 35.7% increase compared to the same period last year, due to one-time disposal gains from subsidiary sales. However, excluding the effects of subsidiary sales, net profit was 167.6 billion KRW, a 37.8% decrease compared to one year ago.

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