Retail Industry Seeks Funding... Will Emart Succeed Again This Time?

Early Year Corporate Bond Issuance in Distribution Sector Raises Funds
Lotte Shopping, Lotte Jiju, Shinsegae, Shinsegae Food Increase Amounts

Emart Demand Forecast on Jan 31, Hotel Shilla on Feb 5
Subsidiary Weakness and Negative Rating Outlook... Interest in Success

As the 'early-year effect' brings abundant liquidity to the corporate bond market, distribution companies have been actively raising funds one after another. Despite bleak business outlooks due to poor earnings and prolonged economic downturn, the distribution industry has received a relatively favorable report card by successfully increasing bond issuance. On the 31st, Emart is preparing for a demand forecast for a 200 billion KRW corporate bond issuance, drawing market attention to its evaluation.

According to the distribution industry on the 31st, since the beginning of this month, Lotte Shopping (AA-·Stable), Shinsegae (AA·Stable), CJ CheilJedang (AA·Stable), Lotte Holdings (AA-·Stable), Shinsegae Food (A+·Stable), Hotel Lotte (AA-·Stable), and Daesang (AA-·Stable) have all knocked on the door of the corporate bond issuance market.

These distribution companies have been raising funds one after another to repay the money they previously borrowed through corporate bond issuance. Companies preparing for demand forecasts include Emart (AA·Negative) and Hotel Shilla (AA-·Stable). Emart plans to raise 200 billion KRW for debt repayment, while Hotel Shilla intends to raise 200 billion KRW for debt repayment and payment for duty-free product suppliers.

Distribution companies that have already conducted demand forecasts all succeeded in selling out. Despite the domestic consumption sentiment contraction, profitability decline, and competitive threats from the e-commerce industry that have struck the distribution sector, they smoothly raised funds. Lotte Shopping (AA-·Stable) issued a total of 335 billion KRW in 2-year, 3-year, and 5-year bonds on the 18th, receiving 1.145 trillion KRW in demand forecasts, issuing 85 billion KRW more than the initially planned 250 billion KRW. Although the 3-year bonds carried an additional spread, considering Lotte Group's liquidity challenges, this seems to have provided some relief. Lotte Holdings (AA-·Stable) also raised 730 billion KRW against a 260 billion KRW target, increasing issuance by 300 billion KRW.

Jung-gu Sunhwa-dong Emart Headquarters. Photo by Jo Yongjun jun21@

The demand forecast result that draws attention is Emart's. Whenever Emart has appeared in the corporate bond market, it has succeeded in attracting nearly 1 trillion KRW in demand forecasts. In January last year, Emart received purchase orders worth 1.175 trillion KRW for a 200 billion KRW bond issuance, and in July, 1.21 trillion KRW was attracted for a 400 billion KRW issuance. Increasing issuance was also easy.

However, this time the situation is different. This is the first fundraising since its credit rating outlook was downgraded from AA·Stable to AA·Negative last month. Emart's unease due to the credit rating downgrade is also evident in the interest rate band. For both 3-year and 5-year bonds, the upper limit of the interest rate band (?30bp~50bp) was opened up to 50bp, offering an incentive to receive up to 50bp more in additional spread.

A 'Negative' rating outlook means there is a high possibility that the rating will soon be downgraded to AA-. From an investor's perspective, this implies that bonds purchased in the issuance market could be sold cheaper in the secondary market later. As investment risk increases and interest rates rise, bond prices fall. Credit rating agencies cited "weakened financial structure due to the acquisition of eBay Korea and W Concept, and poor performance of construction subsidiaries" as reasons for the downgrade in rating outlook.

Considering core business competitiveness, the rating outlook could be stable or positive, but analyses suggest that financial structure and the real estate market are unlikely to improve in the short term. Choi Sung-jong, a researcher at NH Investment & Securities, said, "Companies entering the corporate bond market are raising abundant funds through demand forecasts. However, investor sentiment toward companies with a 'Negative' credit rating outlook needs to be verified, and demand will likely concentrate on companies with solid fundamentals."

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