[Funding] 'Large-scale investment amid deficit' Hyundai Chemical secures additional 50 billion KRW loan

HPC Plant Site, Hyundai Chemical, Daesan, Chungnam

[Asia Economy Reporter Lim Jeong-su] Hyundai Chemical, a joint venture between Hyundai Oilbank and Lotte Chemical, has raised 50 billion KRW in funds. Amid prolonged poor performance, the company plans large-scale investments, and it is expected to continue increasing its borrowings.

According to the investment banking (IB) industry on the 21st, Hyundai Chemical borrowed 50 billion KRW from a special purpose company (SPC) established under the lead of Hana Bank. The loan maturity is two years. Although the repayment is due in a lump sum at maturity, early repayment is possible depending on circumstances.

Hana Bank executed the loan through the SPC and then issued short-term liquidity notes backed by the principal and interest receivables from Hyundai Chemical. These notes are reissued every three months. A purchase agreement was provided whereby Hana Bank will buy the notes if no investors appear during the reissuance.

During the loan process, Hana Bank included a clause for loss of benefit of time based on credit rating. If Hyundai Chemical’s corporate bond credit rating falls below BBB, the bank can declare loss of benefit of time. Hyundai Chemical’s current credit rating is A.

This is the first time in about one and a half years that Hyundai Chemical has raised funds externally, apart from its shareholders Hyundai Oilbank and Lotte Chemical. The last time was in August 2019, when it issued approximately 150 billion KRW in private bonds to Hi Investment & Securities, a Hyundai Heavy Industries affiliate securities firm. Since then, there has been no market-based fundraising such as corporate bond issuance.

The IB industry expects Hyundai Chemical’s borrowings to gradually increase. Since 2017, Hyundai Chemical has continuously experienced poor performance, and since 2019, it has embarked on large-scale investments worth trillions of KRW to build the Chungdam Daesan HPC plant, increasing its funding needs.

In 2019, Hyundai Oilbank conducted a paid-in capital increase targeting its shareholders Hyundai Oilbank and Lotte Chemical, injecting 740 billion KRW. However, due to recent poor performance in the refining business caused by COVID-19, the parent company’s results have deteriorated, making additional capital increases unlikely. Hyundai Oilbank holds 60% of Hyundai Chemical’s shares, while Lotte Chemical holds 40%.

Hyundai Oilbank is reportedly planning to invest a total of more than 2.7 trillion KRW over three years through this year. It currently has a facility loan agreement worth 1.9 trillion KRW with financial institutions including KDB Industrial Bank. During this process, it received credit support such as capital replenishment agreements from its shareholders.

An industry official evaluated, "Considering paid-in capital increases and corporate bond issuances from shareholders, the planned investment amount can be covered, but due to weakened cash generation, it is inevitable to increase funding for operating capital and other needs."