HDC I'Park Mall Raises 340 Billion Won Through Asset Securitization

Successful Investor Recruitment through Hyundai Industrial Development Credit Enhancement
'Construction Market and PF Concerns' Pose Burden on Liquidity Securing

HDC I'Park Mall has raised 340 billion KRW in funds with the support of its affiliate, HDC Hyundai Development Company. Due to prolonged capital erosion, it was difficult to secure funds based on its own credit, so it borrowed the relatively strong credit of its affiliate. However, as HDC and Hyundai Development Company, which have long supported I'Park Mall's fundraising, have recently experienced a decline in credit ratings, the burden of securing liquidity in the future is expected to increase.

Seoul Yongsan I'Park Mall 'The Garden' Exterior View

According to the investment banking (IB) industry on the 29th, I'Park Mall recently received a credit line loan worth 340 billion KRW from two special purpose companies (SPCs) established under the sponsorship of securities firms. The loan was executed in two parts according to repayment priority: a senior loan of 310 billion KRW and a subordinated loan of 30 billion KRW. The maturity is three years, with principal and interest repayment scheduled for May 2027.

It is known that securities firms such as Mirae Asset Securities, Shin Young Securities, and DB Financial Investment participated in this loan. The securities firms secured loan funds by obtaining asset-backed loans (ABL) from other financial companies or issuing asset-backed securities (ABSTB) in the bond market, using the loan principal and interest as underlying assets (a kind of collateral). The final investors in the I'Park Mall loan are those who purchased the ABL or ABSTB.

Hyundai Development Company, a construction affiliate within the group, provided side support for this fundraising. Hyundai Development Company signed an agreement with the lending group to purchase all unpaid bonds if I'Park Mall fails to repay the loan principal and interest on time. This credit provision contract stipulates that if ABL lenders or ABSTB investors exercise their put option rights to sell the bonds (loans) they hold, Hyundai Development Company will unconditionally respond.

I'Park Mall resorted to this indirect method of fundraising because its financial situation is poor, making it difficult to secure project or operating funds independently. Since the early stages of the business, I'Park Mall has accumulated deficits and has been in a state of capital erosion for a long time. As of the end of last year, its equity capital was negative 7.6 billion KRW, indicating complete capital erosion.

I'Park Mall recorded net losses for nine consecutive years from 2004, the early stage of the business, through 2013. Although cash flow improved and turned positive from 2014, it did not escape the state of capital erosion. Then, from 2016 to 2020, during the expansion and renewal construction of Yongsan I'Park Mall, borrowings rapidly increased. Most of the funding at that time was secured through credit support from the parent company HDC and affiliate Hyundai Development Company.

However, as the credit ratings of HDC and Hyundai Development Company, which were strong supporters, have deteriorated, securing funds has become difficult. Credit rating agencies downgraded the credit ratings of HDC and Hyundai Development Company by one notch from A+ to A after the Gwangju Hakdong and Hwajeong-dong accidents in 2022. The rating outlook was also assigned a 'Negative' outlook. Recently, concerns over soaring construction costs and project financing (PF) defaults have further increased anxiety about the creditworthiness of construction companies.

An IB industry official said, "Because the construction business accounts for such a large portion of the entire HDC Group, weakening in the construction sector adversely affects the credit rating of the entire group," adding, "Although I'Park Mall's cash flow has recently improved, it is highly likely to face difficulties in repaying borrowings and raising operating funds."

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