[Funding] Dongbang, 31 Billion Won Credit Line Loan... Borrowing Burden 'Repetition'

[Asia Economy Reporter Lim Jeong-su] Logistics company Dongbang has secured a credit line loan of 31 billion KRW from a consortium including securities firms. Although it has been reducing its borrowings by selling stakes in affiliates last year, its performance and financial structure have not significantly improved due to continuous investments in logistics facilities and the burden of supporting affiliates. The burden of short-term borrowings is also increasing as maturing loans are being addressed with short-term borrowings.

According to the investment banking (IB) industry on the 2nd, Dongbang recently signed a credit line loan agreement worth 31 billion KRW with Hanyang Securities and others. The maturity is two years, with principal repayment due in January 2023. The loan is expected to be executed in three tranches?Tranche A, B, and C?based on repayment priority. Among these, Tranche A loan of 11 billion KRW was drawn at the end of January. The procured funds are reportedly intended for loan repayment and other uses.

To avoid forced early repayment of the credit line loan, Dongbang must obtain a commitment to purchase securitized bonds from a financial institution with a valid credit rating of A3 or higher. Otherwise, the loan must be repaid immediately due to loss of benefit of time. The IB industry stated, "Dongbang’s creditworthiness has deteriorated significantly, impairing its ability to repay loans, which is why the loan conditions require credit support from a high-quality credit institution."

Dongbang has been actively improving its financial structure by repaying loans, including selling its stake in Gwangyang Shipbuilding Co., Ltd. for 57.7 billion KRW last year. Consolidated borrowings increased to 337.7 billion KRW at the end of 2019 but were reduced by about 100 billion KRW to 235.8 billion KRW by the end of September last year through financial improvement efforts.

However, the burden of short-term borrowings remains significant. Short-term borrowings and current portion of long-term debt that must be repaid or refinanced within one year amount to 160 billion KRW. The balance of commercial paper (CP) and electronic short-term bonds, considered ultra-short-term funds, decreased to 8 billion KRW in the third quarter of last year but rose again to 38 billion KRW at the beginning of this year. Bank short-term borrowings and private bond maturities are also lined up.

Profitability is also suppressed due to excessive interest expenses on borrowings. Dongbang’s annual EBITDA increased from below 40 billion KRW in 2018 to 51.4 billion KRW in 2019. However, due to depreciation from facility investments and interest expenses on borrowings, it recorded a net loss of 8.7 billion KRW. With EBITDA expected to fall to the low 40 billion KRW range last year and financial costs not significantly decreasing, it is uncertain whether the company can achieve an annual turnaround to profit.

The burden of supporting affiliates is another reason why the borrowing burden cannot be significantly reduced. An industry insider said, "Large-scale investments must continue to secure logistics competitiveness, and the financial support burden for affiliates such as Dongbang S&D and Pyeongtaek Dongbang i-Port has not been resolved," adding, "Even if performance improves slightly, significant improvement in the financial structure is unlikely in the near term."