Seojin Industry Faces Burdensome Private Bond Maturity Amid Speculative Grade Downgrade

[Asia Economy Reporter Lim Jeong-su] Seojin Industry, a first-tier vendor of Hyundai Motor Group, continues to raise funds through short-term private bonds issuance under 10 billion KRW. Since its credit rating dropped to speculative grade last year, demand for corporate bonds has significantly decreased. With multiple debt maturities, including private bonds, approaching within the year, the burden of refinancing and repayment is growing.

According to the investment banking (IB) industry on the 12th, Seojin Industry raised funds by issuing private bonds worth 3 billion KRW. The bonds have a maturity of one year with an interest rate of 5.90%. Cape Investment & Securities is reported to have underwritten the bonds. Seojin Industry also issued 3 billion KRW worth of one-year maturity private bonds at the same interest rate on the 21st of last month. In about a month, it raised 6 billion KRW through short-term private bond issuance.

Last year, Seojin Industry issued a total of 15 billion KRW in private bonds in two rounds in April and July. It raised 10 billion KRW underwritten by Shinhan Investment Corp. and 5 billion KRW underwritten by KB Securities. The private bonds issued at that time will mature sequentially in April (10 billion KRW) and July (5 billion KRW). Additionally, maturities of 8 billion KRW in September and 12 billion KRW in October are pending.

Although the burden of responding to debt maturities is significant, it is difficult to raise market-based funds due to the credit rating downgrade. At the end of last year, NICE Credit Rating adjusted Seojin Industry’s long-term and short-term credit ratings from BBB-, A3- to speculative grades BB+, B+. An IB industry official stated, "Since the credit rating dropped to speculative grade, issuing corporate bonds over 10 billion KRW has become difficult."

Seojin Industry produces automotive parts such as chassis frames, bumpers, clutches, and wheels, supplying them to Hyundai Mobis and others. Currently, SJ Holdings, a holding company affiliated with the Seco Group, holds a 62.50% stake. Since being incorporated into the Seco Group in 2012, it has grown by securing parts orders for models such as Soul, Kia K-Series, Sonata, and Santa Fe.

Due to strong orders, sales and operating profits have shown an increasing trend annually. However, external borrowings have significantly increased to acquire Hyundai Mobis’s new business, build the Gyeongju plant, and acquire Youngpoong Machinery. Borrowings, which were around 200 billion KRW, rose to about 350 billion KRW by the end of 2018. Furthermore, due to poor performance and deteriorating financial conditions of major affiliates such as Seojin Cam and Seojin Automotive, the burden of supporting affiliates is increasing.

According to NICE Credit Rating, the combined borrowings of Seco Group affiliates reached 960 billion KRW as of the end of 2018, which is 5.7 times the annual EBITDA. Due to continuous investments, free cash flow remains negative. Seojin Automotive, a key affiliate listed on KOSDAQ, recorded a net loss of 8.9 billion KRW on a consolidated basis through the third quarter of last year and has not escaped losses for three consecutive years. The cumulative net loss over three years amounts to 51 billion KRW.

An IB industry official pointed out, "It is difficult for affiliates, including Seojin Automotive, to raise funds independently," adding, "The overall ability of the affiliates to respond to borrowings is weak."