Nexen Tire Issues Consecutive Corporate Bonds... 900 Billion KRW Debt Maturing Within the Year

Public Bond 148 Billion + Private Bond 50 Billion Issuance
Increased Borrowing Burden Due to Investment in Czech Factory Amid Performance Decline
Debt Resolution Likely to Continue Through Borrowing

Nexen Tire is increasing its corporate bond issuance by consecutively issuing public and private bonds. This is because, amid years of deteriorating performance, the company has relied on borrowings to increase investments in its Czech factory and other areas, and from this year, borrowings exceeding 900 billion KRW are coming due one after another. It is expected that fundraising for debt repayment will continue for the time being.

According to the investment banking (IB) industry on the 10th, Nexen Tire recently issued private bonds worth 50 billion KRW under the management of Korea Investment & Securities. This includes 20 billion KRW of 10-month maturity bonds and 30 billion KRW of 1-year maturity bonds. In addition, early last month, the company issued 148 billion KRW of public corporate bonds under the management of Shinhan Investment Corp. This means that the company raised additional funds just one month after issuing public bonds. The bond issuance interest rates were mostly around 4% or in the low 4% range. The raised funds are reportedly planned to be used for debt repayment and capital expenditures (CAPEX).

While continuing investments, Nexen Tire’s reliance on borrowings has increased due to recent worsening performance. Earnings before interest, taxes, depreciation, and amortization (EBITDA), which exceeded 370 billion KRW in 2019, shrank every year during the COVID-19 pandemic and sharply dropped to about 132 billion KRW in 2022. Despite this, as investments increased, free cash flow (FCF) turned from a surplus of around 50 billion KRW to a deficit of 380 billion KRW during the same period. Although annual EBITDA recovered to 380 billion KRW last year, large-scale investments in the Czech 2nd factory and the Magok research and development (R&D) center resulted in an FCF deficit of about 92 billion KRW.

In this process, net borrowings?total borrowings minus cash equivalents?increased from 890 billion KRW in 2021 to 1.453 trillion KRW last year. As of the end of last year, short-term borrowings and current portion of long-term debt (borrowings maturing within the year) that must be repaid or refinanced within the year exceed 900 billion KRW out of total borrowings of 1.77 trillion KRW. This means that borrowings to be repaid within the year approach 1 trillion KRW.

For these reasons, Nexen Tire has no choice but to issue corporate bonds again to repay borrowings. The 140 billion KRW corporate bonds issued in April will be used to repay 40 billion KRW in bank borrowings maturing in early May and 100 billion KRW in corporate bonds maturing in June. Corporate bond maturities will come monthly starting from February next year, and bank borrowings used for overseas investments are also continuously maturing within the year.

An IB industry official said, "With borrowings maturing heavily this year and early next year, the company will continue to extend existing borrowings or issue corporate bonds to repay debts," adding, "It is expected that investments in the Czech 2nd factory will continue this year, so it is difficult for funding needs to decrease." The official also predicted, "Most of the expansion investment in the Czech 2nd factory will be completed this year, and since EBITDA has recovered to past levels since last year, the company will be able to improve its deteriorated financial structure caused by expanded investments in the long term."

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