[Funding] Hyundai Samho Heavy Industries, Accelerated Private Bond Issuance Cycle

[Asia Economy Reporter Lim Jeong-su] The issuance cycle of private bonds by Hyundai Samho Heavy Industries has accelerated. This is interpreted as a result of the need to speed up funding due to the shortening of loan maturities and the increased necessity to secure operating funds in response to order volumes.

According to the investment banking (IB) industry on the 14th, Hyundai Samho Heavy Industries issued private bonds worth 35 billion KRW on the 10th, underwritten by DB Financial Investment. The maturities were 2 years and 2 years 6 months, issued in amounts of 20 billion KRW and 15 billion KRW respectively. The interest rates were 3.47% and 3.75% according to the maturity.

One of the major investors, Shinhan Bank, acquired 20 billion KRW worth of Hyundai Samho Heavy Industries' private bonds through a special purpose company (SPC) and then issued short-term bonds backed by the principal and interest of those bonds as underlying assets. This was a securitization demand using private bonds rather than pure private bond investment demand.

In the securitization process, a condition was set to immediately redeem the bonds if Hyundai Samho Heavy Industries' credit rating falls to A3- or BBB- or below. The current credit ratings are BBB+ and A3-, leaving two notches before the early redemption trigger.

Hyundai Samho Heavy Industries also issued private bonds worth 165 billion KRW last month on the 25th, underwritten by DB Financial Investment. In September and October of last year, it issued private bonds worth 30 billion KRW each, raising a total of 60 billion KRW. In the past six months alone, it has raised 260 billion KRW through private bonds.

Hyundai Samho Heavy Industries has recently increased the issuance of commercial paper (CP), a very short-term marketable fund. In December last year, it issued CP worth 30 billion KRW, increasing the total CP balance to 130 billion KRW. After newly increasing CP by 100 billion KRW in September 2019, it has increased the balance again after about 1 year and 3 months.

An IB industry official explained, "Short-term borrowings (including current portion of long-term debt) maturing within one year account for most of the total borrowings of about 1 trillion KRW on a consolidated basis," adding, "The issuance cycle of private bonds is shortening and the frequency is increasing to refinance borrowings and secure additional operating funds."

Meanwhile, Hyundai Samho Heavy Industries is currently pursuing a plan to spin off and newly establish the industrial equipment division as Hyundai Infra Solution (tentative name). After the split, the surviving company, Hyundai Samho Heavy Industries, will be responsible for shipbuilding, while the newly established company, Hyundai Infra Solution, will handle industrial equipment manufacturing. The split date is scheduled for May 3.