[Funding] Hanwha Construction 추진 for 130 billion KRW liquidity secured through 'Loans + Corporate Bonds'

[Asia Economy Reporter Lim Jeong-su] Hanwha Construction, facing an emergency in securing liquidity due to the novel coronavirus infection (COVID-19) crisis, has been actively raising funds. It secured 30 billion KRW through loan securitization and is pushing for a 100 billion KRW corporate bond issuance with support from the Korea Development Bank.

According to the investment banking (IB) industry on the 19th, Hanwha Construction borrowed 30 billion KRW under the management of Woori Comprehensive Financial. The loan maturity is two years, and Woori Financial acquired it through a special purpose company (SPC), then sold it to institutional investors in the form of securitized bonds backed by the loan principal and interest. The securitized bonds are reissued every three months until maturity as short-term refinancing.

This loan includes a condition that if Hanwha Construction's credit rating falls below BBB or A3, early repayment can be demanded before maturity. Currently, Hanwha Construction's long- and short-term credit ratings are A- and A2-, respectively, leaving three notches before the loss of benefit of term trigger. It is known that such credit triggers are applied to approximately 200 billion KRW of borrowings Hanwha Construction has raised in the capital market, including project financing (PF) securitized bonds.

The lead manager, Woori Financial, provided a purchase commitment to the SPC during the loan process. This means that if there are no investors when the securitized bonds are refinanced every three months, Woori Financial will purchase the bonds instead. The purchase commitment obligation of Woori Financial expires upon loss of benefit of term.

Simultaneously with the loan, Hanwha Construction is promoting the issuance of 100 billion KRW worth of public corporate bonds. The Korea Development Bank will participate as a bond underwriter and plans to purchase up to 40 billion KRW worth. If sufficient investment demand from institutional investors is gathered during the demand forecast, the Korea Development Bank will not purchase the bonds.

Since issuing 93 billion KRW worth of public corporate bonds in February, Hanwha Construction has not issued large-scale corporate bonds. As funding became difficult due to the spread of COVID-19, it secured liquidity in small amounts several times, including 10 billion KRW in private bonds in April and 30 billion KRW in loans in May.

Hanwha Construction's burden of securing funds is expected to continue for some time. The short-term repayment burden of borrowings is high, and the operating fund burden is increasing as the collection speed of accounts receivable slows down.

At the end of the first quarter this year, Hanwha Construction's net borrowings were 1.72 trillion KRW, an increase of 480 billion KRW from 1.24 trillion KRW at the end of last year. Although total borrowings decreased by about 80 billion KRW to 2 trillion KRW, cash equivalents decreased by about 560 billion KRW from 840 billion KRW to 280 billion KRW. The short-term repayment burden, including short-term borrowings and current portion of long-term debt to be repaid within one year, is about 1.3 trillion KRW.

An industry insider said, "Due to the COVID-19 crisis, corporate bond issuance with excellent credit ratings of A grade or higher is proceeding well, but below that, the market situation continues to make it difficult to find demand for public bonds," adding, "Hanwha Construction's burden of securing funds seems to be increasing."