‘Following SK Group, Hyundai Oilbank Also’ Expansion of Demand Note Securitization

Three Oil Refiners Issue 1 Trillion Won in One Week
Liquidity Secured for Fuel Tax Payment
Huge Short-Term Cash Burden When Paying in Cash
Likely to Spread to Other Industries Including Refining

Refining companies have securitized promissory notes used for inter-company payments to raise large-scale funds. This move aims to secure liquidity for the advance payment of the indirect tax, fuel tax. The securitization of promissory notes is a financing method that has been spreading within the refining industry since SK Group affiliates first started it domestically last year, with HD Hyundai Oilbank joining this year. It is expected that the volume of promissory note securitization will increase significantly if other refiners such as GS Caltex and S-Oil also join.

Issued 1 trillion KRW in one week... Liquidity raised for fuel tax payment

HD Hyundai Oilbank recently raised about 300 billion KRW through promissory note securitization. They opened a checking account at Suhyup Bank and issued promissory notes to a special purpose company (SPC), which then issued asset-backed securities using the promissory notes as underlying assets (a type of collateral). Bookook Securities acted as the lead manager and recruited investors for the asset-backed securities. A promissory note is a check issued by a company that has opened a checking account with a bank within a pre-agreed limit with the bank.

SK Energy, a refining business affiliate of SK Group, also issued promissory notes worth 630 billion KRW through Suhyup Bank. Bookook Securities acquired the notes through the SPC and attracted investors for the asset-backed securities based on these notes. SK Incheon Petrochem also secured 72 billion KRW in liquidity using the same method.

The volume of promissory notes issued by SK Group affiliates and HD Hyundai Oilbank within one week for fuel tax payment reached 1 trillion KRW. It is known that all these funds will be used for fuel tax payments. Fuel tax is paid in advance by refiners when petroleum products are shipped, and then sequentially recovered as the products are sold at gas stations and other outlets. The time lag between payment and recovery has been a cause of liquidity pressure on refiners.

An investment banking industry official said, "The fuel tax paid by refiners amounts to several hundred billion KRW at once, which poses a significant liquidity burden for domestic refiners with high borrowing costs," adding, "By setting large promissory note limits, refiners have been able to alleviate liquidity pressures related to fuel tax payments."

Expansion trend expected within the refining industry

A gas station in Seoul

The investment banking industry expects the use of promissory note securitization by refiners to secure liquidity to expand. This is because refiners share the characteristic of having to make large-scale fuel tax payments frequently due to their business structure.

The first instance of promissory note securitization started in August last year. At that time, three SK Group refining affiliates?SK Energy (475.4 billion KRW), SK Incheon Petrochem (168.8 billion KRW), and SK Enmove (33.3 billion KRW)?issued a total of 680 billion KRW worth of promissory notes. All three companies are subsidiaries of SK Innovation, SK Group’s intermediate holding company, and are related to refining businesses.

Since then, SK Group affiliates have frequently conducted promissory note securitization to pay fuel taxes. This year, HD Hyundai Oilbank initiated large-scale promissory note securitization, while major domestic refiners GS Caltex and S-Oil have not yet made announcements. A securities firm IB representative predicted, "Refiners that have not yet used promissory note securitization are likely to enter the market when liquidity management becomes necessary."

Attention is also focused on whether this financing method will spread to other companies that need to respond to large-scale short-term liquidity demands. An industry insider said, "Refiners used to frequently utilize credit card purchase receivables securitization to secure liquidity," adding, "Recently, promissory note securitization has emerged as an alternative and is spreading within the refining industry."

The insider also forecasted, "It is highly likely that this financing method will expand to other industries that have traditionally secured liquidity through credit card purchase receivables securitization."

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