[Funding] 'Credit Rating↓' Hyundai Elec, Samsung Securities Support 40 Billion KRW Credit Line Loan

[Asia Economy Reporter Lim Jeong-su] Hyundai Electric & Energy, established by splitting the electric and electronic systems division from Hyundai Heavy Industries, secured liquidity of 40 billion KRW through loan securitization. This funding was obtained amid difficulties in raising market-based funds due to deteriorating financial conditions.

According to the investment banking (IB) industry on the 22nd, Hyundai Electric received a total loan of 40 billion KRW underwritten by Samsung Securities. Samsung Securities directly executed a loan of 10 billion KRW, while the remaining 30 billion KRW was executed by a special purpose company (SPC) created by Samsung Securities, which attracted loan securitization investors.

The loan maturity is two years with a lump-sum repayment condition at maturity, but early repayment is possible after one year and six months. Additionally, if the credit rating falls below BBB, repayment must be made within five days. The current credit rating is A- with a 'negative' outlook. There are two notches left before triggering early repayment.

Since its spin-off from Hyundai Heavy Industries, Hyundai Electric has not escaped the trend of worsening financial conditions due to ongoing business deterioration and increased borrowings. Although equity capital increased to over 1 trillion KRW through two rights offerings in 2017 and 2019 and asset sales, accumulated net losses over about three years reduced it to approximately 683 billion KRW as of the end of the third quarter last year.

Operating profit turned positive last year, but profitability remains low, unable to cover interest on borrowings with earnings. To repay maturing borrowings and secure operating funds, the company has no choice but to increase external borrowings.

Borrowings decreased from 907 billion KRW at the end of 2018 to about 782 billion KRW at the end of last year, but rose again to 881 billion KRW in the third quarter of last year. Of this, about 693 billion KRW must be repaid or refinanced within one year, posing a significant short-term repayment burden.

An IB industry official evaluated, "Hyundai Electric improved its performance by turning operating profit positive last year through drastic cost control," but added, "Due to worsening business conditions, cash flow improvement is difficult, raising significant concerns about further credit deterioration."