Seongwoo Hightech, Meritz Capital, and 13 Other Companies Raise 150 Billion Won with KODIT Support

Liquidity Securing Measures for Low Credit Mid-sized and Small Enterprises
Lowering Financing Rates with Shinbo Guarantees...Including Some Credit Rating A Companies

Fifteen mid-sized and small companies, including Sungwoo Hitech, Meritz Capital, and Handok, secured funding worth 150 billion KRW with government guarantees. As polarization in the corporate bond market deepens, making it difficult for companies with low credit ratings to raise funds, not only BBB-rated and below companies but also some A-rated companies sought government support to secure financing.

According to the investment banking (IB) industry, the Korea Credit Guarantee Fund (KODIT) will issue 150 billion KRW worth of primary collateralized bond obligations (P-CBO) on the 21st. A P-CBO is a securitized bond issued by a special purpose company (SPC) that acquires private corporate bonds issued by multiple companies, with KODIT providing a guarantee to the SPC. P-CBO investors receive principal and interest payments on the CBO from the funds repaid by the companies to the SPC. It is mainly used as a liquidity tool by low-credit companies that find it difficult to raise funds independently.

This CBO issuance includes many A-rated companies such as Meritz Capital (A+), Sungwoo Hitech (A-), and Daeryun ENS (A-). Meritz Capital issued a 2-year private bond worth 35 billion KRW at an interest rate of 5.307%, and Sungwoo Hitech issued the same amount at 5.007%. Daeryun ENS raised 10 billion KRW at an interest rate of 5.007%. An IB industry official explained, "Although A-rated companies can issue bonds independently, it is difficult to secure sufficient liquidity at reasonable interest rates in the bond market. Using P-CBO allowed them to lower their borrowing costs somewhat."

Sungwoo Hitech, a first-tier vendor of Hyundai Motor Group, has recently increased its investments in North America, leading to a rise in borrowing burdens. In particular, short-term debt maturing within one year amounts to about 1.1 trillion KRW, posing a considerable repayment burden. Daeryun ENS, a subsidiary of Hanjin Heavy Industries, has improved its recent performance and financial structure, but convertible redeemable preferred stocks (RCPS) issued to support group energy subsidiaries such as Daeryun Power and Byeollae Energy continue to be financial burdens.

Among BBB-rated companies, Handok (BBB+, 10.5 billion KRW), Cosmax (BBB+, 7.5 billion KRW), Gyeryong Construction Industry (BBB+, 7 billion KRW), and Dongbang (BBB-, 7 billion KRW) received government support. Gyeryong Construction Industry has experienced deteriorating cash flow due to the recent downturn in real estate and construction markets. Due to negative perceptions of the construction industry, it has been difficult to issue bonds, so it has secured liquidity recently through bonds with options. Handok and Cosmax have also raised funds through bonds with options but are now refinancing maturing private bonds with KODIT support. An IB industry official stated, "Many companies receiving KODIT support are reissuing bonds to secure funds for debt repayment."

Among speculative-grade BB-rated companies, Gibosteel (BB+, 3.5 billion KRW), Kwangmyeong Industry (BB-, 1.75 billion KRW), Daehan Textile (BB, 7 billion KRW), and Praco (BB, 7 billion KRW) received funding support. Among B-rated companies, Castel Bajac (B+, 9 billion KRW) and EO (B+, 8 billion KRW) secured liquidity with government support.