Doosan Raises 95 Billion KRW by Securitizing 'Electronics BG Accounts Receivable'

Corporate Bonds Issued... 170 Billion Won Liquidity Raised in One Week
Increased Financial Burden Due to Support for Heavy Industry and Construction

[Asia Economy Reporter Lim Jeong-su] Doosan, the de facto holding company of Doosan Group, has securitized future accounts receivable of its Electronics Business Group (Electronics BG) to raise 95 billion KRW. Additionally, it will issue 75 billion KRW worth of corporate bonds to secure a total liquidity of 170 billion KRW. The financial burden is increasing due to consecutive financial support for affiliates such as Doosan Heavy Industries & Construction and Doosan Construction.

According to the investment banking (IB) industry on the 31st, Doosan raised 95 billion KRW by creating a special purpose company (SPC) named 'DpayJ2' under the management of KB Securities. Doosan's Electronics BG used accounts receivable expected over the next three years from supplying printed circuit board (PCB) substrates and other products as collateral.

This funding was conducted by Doosan selling its accounts receivable to the SPC. The rights to the income received from entrusting the accounts receivable to a bank trust were transferred to DpayJ2, and DpayJ2 provided the trust income rights acquired from Doosan as collateral to another SPC to borrow funds. Although DpayJ2 is the nominal borrower, Doosan is effectively the entity securing the funds.

Instead of directly taking the risk, Doosan assumed contingent liabilities. If DpayJ2 fails to repay principal and interest on time, Doosan agreed to supplement the shortfall or assume the debt. An IB industry official explained, "Through this method, Doosan was able to raise funds without increasing its debt ratio or borrowings."

Doosan Electronics BG supplies semiconductor printed circuit boards (PCBs) to Daeduck Electronics and others. It also provides fuel cell parts and IT services to its affiliate Doosan Fuel Cell. Doosan has agreed to supply products and services worth 46.6 billion KRW to Doosan Fuel Cell, which was spun off last year. Including this, the annual sales of Electronics BG are around 600 billion KRW.

An IB industry official evaluated, "The loan-to-value (LTV) ratio compared to the sales generated by Electronics BG over the next three years is quite low," adding, "Since sales are stably generated, the repayment stability of the securitized loan is high."

Simultaneously with the accounts receivable securitization, Doosan will issue corporate bonds worth 75 billion KRW in early next month. In the recent corporate bond demand forecast conducted with KB Securities and Kiwoom Securities as lead managers, institutional investor demand exceeded the target amount. Accordingly, Doosan will raise approximately 170 billion KRW in market funds over one week.

The borrowed funds are expected to be mainly used for debt repayment. The maturity of the 100 billion KRW corporate bonds issued in March last year will come due this March. Currently, commercial papers (CP) and electronic short-term bonds maturing within one year exceed 300 billion KRW. As of the end of September last year, short-term borrowings and current portion of long-term liabilities that must be repaid or refinanced within one year total 840 billion KRW.

Since 2016, Doosan's burden of supporting affiliates has expanded. It purchased affiliate shares and real estate held by Doosan Construction, and in 2017 and last year, it continuously supported affiliates by investing large-scale funds into Doosan Heavy Industries & Construction through convertible bonds (BW) acquisition and paid-in capital increase.

In this process, Doosan's total borrowings based on separate financial statements, which had been maintained around 1 trillion KRW until 2017, increased to 1.64 trillion KRW in the third quarter of last year. A credit rating agency official expressed concern, saying, "Due to financial support for affiliates such as Doosan Heavy Industries & Construction and Doosan Construction, Doosan's borrowing burden is rapidly increasing."

Its own cash-generating ability has weakened due to consecutive business unit spin-offs. Last year, it spun off the fuel cell business (Doosan Fuel Cell) and materials business (Doosan Solus), and gave up the duty-free shop business. In March, it will participate in Doosan Heavy Industries & Construction's paid-in capital increase by contributing Doosan Mecatec shares in kind.