'Successful Capital Increase' CJ CGV Raises 180 Billion Won... Accelerating Financial Improvement

CJ CGV is continuously raising funds through methods such as issuing short-term commercial paper (CP) and loan securitization. Struggling with financial burdens after six consecutive years of net losses since the COVID-19 pandemic, the company has embarked on large-scale fundraising to repay loans secured by theater lease deposits. With improved financial conditions following a successful rights offering and performance improvements, CJ CGV has been able to increase external borrowings through various means.

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According to the investment banking (IB) industry on the 29th, CJ CGV recently raised 60 billion KRW under the lead of Hana Bank. The company received a loan from a special purpose company (SPC) established by Hana Bank, and the SPC secured loan funds through asset-backed lending (ABL) and issuance of securitized bonds backed by the loan principal and interest. Hana Bank provided credit guarantees to the SPC to support CJ CGV’s fundraising.

Earlier, CJ CGV secured liquidity by issuing 120 billion KRW worth of short-term commercial paper (CP). On the 14th, it issued 70 billion KRW of CP, followed by an additional 50 billion KRW on the 21st. After a long hiatus in CP issuance, CJ CGV’s CP balance swelled to 120 billion KRW within the past two weeks. Through CP issuance and loan securitization, the total borrowed funds over the recent two weeks reached approximately 180 billion KRW.

CJ CGV initiated fundraising to repay loans borrowed against theater lease deposits as collateral. In August 2018, facing financial difficulties, CJ CGV borrowed 180 billion KRW from JB Asset Management and others on the condition of transferring the lease deposits paid to building owners when renting theaters. Although the loan matured in August 2021, CJ CGV extended the maturity by three years due to difficulties in securing liquidity for repayment. By repaying this loan, CJ CGV can now financially utilize the lease deposits that were previously held as collateral by investors.

Having faced unstable financial conditions, CJ CGV recently succeeded in improving its financial structure through a large-scale rights offering, enabling it to raise funds through various channels. The large-scale rights offering initiated last year was finalized this year, resulting in significant financial improvements. CJ CGV had planned to improve its financial structure by receiving CJ OliveNetworks shares held by CJ as a capital contribution in kind last year. However, the plan was delayed due to court intervention, but recently the court gave final approval for the third-party allotment rights offering. With CJ OliveNetworks becoming a subsidiary, consolidated financial conditions and cash flow are expected to improve substantially.

Although CJ CGV has not yet recovered to pre-COVID-19 performance levels, sales and operating profits have been increasing since the endemic phase. In the first half of this year, CJ CGV recorded sales of 823 billion KRW and operating profit of 27 billion KRW. Compared to the first half of last year, sales increased by about 3%, and operating profit grew approximately eightfold. Operating cash flow (OCF) also rose from 81 billion KRW to 103 billion KRW.

Based on the improved financial structure, external fundraising is expected to continue. This is because high-interest borrowings issued in the past are reaching maturity one after another. Through processes such as early repayment of high-interest hybrid capital securities issued to improve the debt ratio, interest burdens are also expected to decrease. An IB industry official commented, "As CJ CGV’s credit rating improves and market interest rates decline, it is expected that maturing high-interest borrowings will be repaid with low-cost borrowings, thereby improving the overall funding structure."

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