[Funding] Harim Holdings Secures Additional Liquidity Using 'Pan Ocean Shares' as Collateral

Worsening Cash Generation and New Investments Increase Borrowing Burden
Significant Portion of 58% Equity Held Pledged as Loan Collateral
Equity Collateral Capacity Gradually Depleting

Pan Ocean vessel

[Asia Economy Reporter Lim Jeong-su] Harim Holdings has raised 30 billion KRW in funds by using its subsidiary Pan Ocean’s shares as collateral. Amid sluggish performance of its affiliates, the company is increasing new investments, resulting in a continuous rise in borrowing burdens. In this process, a significant portion of the Pan Ocean shares acquired in 2015 was used as collateral for loans.

According to the investment banking (IB) industry on the 19th, Harim Holdings borrowed 30 billion KRW from a special purpose company (SPC) established under the lead of KB Kookmin Bank on the same day. The maturity is three years, with a lump-sum principal repayment at maturity.

The lead manager, Kookmin Bank, after executing the loan through the SPC, issued short-term notes backed by the principal and interest to be received from Harim Holdings as underlying assets to secure loan funds. Kookmin Bank also provided credit support by agreeing to supply liquidity to the SPC if funds for note repayment fall short.

Harim Holdings provided Pan Ocean common shares as collateral for the fund procurement. This was done by establishing a pledge on the Pan Ocean shares it holds. Currently, Harim Holdings owns 57% of Pan Ocean’s shares.

Since acquiring Pan Ocean, Harim Holdings has continuously secured liquidity by leveraging its common stock shares. While borrowing funds, it has provided 14.5% of Pan Ocean shares as collateral to Kookmin Bank and the SPC established by Kookmin Bank. Approximately 10.5% of shares have also been pledged to Korea Securities Finance Corporation.

Additionally, about 11.6% of shares are held as collateral by securities firms including Daishin Securities (7.5%), Korea Investment & Securities (2.1%), Hana Financial Investment (1.2%), and Kyobo Securities (0.8%). The Pan Ocean shares pledged as collateral to secure liquidity approach roughly 40% of total shares.

In 2015, Harim Group, together with JKL Partners, acquired Pan Ocean from the Bankruptcy Division of the Seoul Central District Court for 1.008 trillion KRW. They secured 58% of management control shares by investing 850 billion KRW in Pan Ocean’s new capital increase and purchased 158 billion KRW worth of corporate bonds issued by Pan Ocean.

Currently, Pan Ocean’s market capitalization is approximately 2.8332 trillion KRW, and the value of Pan Ocean shares held by Harim exceeds 1.5 trillion KRW. Shares not provided as collateral amount to about 20%, leaving a margin of around 300 billion KRW in share value. Since last year, Pan Ocean’s stock price has surged due to rising freight rates, increasing Harim Holdings’ capacity for fund procurement.

However, as the group’s affiliates are generally suffering from poor performance and increasing investments in new businesses, the financial structure is gradually deteriorating. Harim Holdings’ consolidated annual EBITDA, which once exceeded 700 billion KRW, has recently halved to around 300 billion KRW. Borrowings, which had decreased to 3 trillion KRW, have increased to over 5 trillion KRW during the same period.

The IB industry expects the borrowing trend of Harim Group affiliates to continue. Despite declining cash generation, large-scale funds are anticipated to be invested in expanding the food business and developing the Yangjae-dong freight terminal site. An industry insider commented, "The capacity for fund procurement using Pan Ocean shares is gradually being exhausted," adding, "It is necessary to recover to a virtuous cycle structure that achieves financial improvement through performance enhancement."