Haesung Group Provides Capital Increase to 'Seha'... Supporting Financial Improvement

[Asia Economy Reporter Lim Jeong-su] Haesung Group's holding company Haesung Industry and its core affiliate Korea Paper recently acquired the white cardboard specialist company Seha and will inject funds through a paid-in capital increase. The plan is to improve Seha's financial structure and enhance profitability, which had been suppressed due to interest expenses on borrowings.

Haesung Group announced on the 1st that it plans to support Seha, a white cardboard specialist company, with a paid-in capital increase fund of approximately 32 billion KRW (undecided). It will participate in the paid-in capital increase promoted through a rights offering followed by a general public offering of forfeited shares.

Seha has selected KB Securities as the lead manager and is recruiting new investors. The shares to be raised are 28 million common shares, with 20% of the new shares allocated to employee stock ownership and the remaining 80% allocated to existing shareholders. After procedures such as subscription by existing shareholders and public offering of forfeited shares, the paid-in capital increase process is planned to be completed by August 14. The issue price of the new shares and the final amount of capital increase will be decided on the 20th.

Seha will use the raised funds to repay short-term borrowings borrowed from KB Securities. As of the end of the first quarter this year, Seha's borrowings amounted to 102.4 billion KRW, of which short-term borrowings (including current portion of long-term debt) that must be repaid within one year reached 92.3 billion KRW. Interest expenses on borrowings are known to reach 5 billion KRW annually. The debt ratio approaches 350%.

Although white cardboard is Seha's main business, in 2005, it invested a large amount of funds in oil field development in Kazakhstan for business diversification, which caused insolvency and worsened the financial structure. In 2014, it applied for a workout and in November of the same year, the private equity firm for corporate financial stabilization (hereafter, UAMCO) became the largest shareholder through debt offset.

Recently, Haesung Group acquired the shares held by UAMCO, and currently Korea Paper and Haesung Industry hold 57.32% and 14.32% of the shares, respectively. If Korea Paper and Haesung Industry merge, Seha will become a subsidiary of the surviving company Haesung Industry. Last year, Seha recorded sales of 177.6 billion KRW and operating profit of 14.1 billion KRW, growing 0.2% and 40.5% year-on-year, respectively. In the first quarter of this year, sales and operating profit also showed growth of 11.6% and 164.4%, respectively, indicating an improving performance trend.

It is expected that using the raised funds to repay short-term borrowings will significantly reduce the burden of interest expenses. A Korea Paper official explained, "With the downward stabilization of pulp prices, the profitability of the white cardboard business is improving every year," adding, "Reducing borrowing costs through financial structure improvement will further enhance profitability."