[Funding] 'Corona Shockwave' Megabox Jungang Raises 20 Billion Won Through Private Bond Securitization

[Asia Economy Reporter Lim Jeong-su] Megabox Joongang has raised 20 billion KRW through private bond securitization. With borrowings sharply increasing due to investment in a new headquarters building and the movie theater business worsening due to COVID-19, the financial burden has grown. Although there were once rumors of a sale, it is now known that the company has recently shifted its direction toward an initial public offering (IPO).

According to the investment banking (IB) industry on the 18th, Megabox Joongang issued private bonds worth 20 billion KRW underwritten by Shinhan Investment Corp. The maturity is one year, with a lump-sum principal repayment at maturity. A special purpose company created by the underwriter acquired the private bonds and then issued 3-month maturity securitized short-term bonds backed by these assets. The short-term bonds are refinanced every three months.

Investors attached a condition allowing them to declare loss of benefit of time if Megabox Joongang’s credit rating falls below BBB-. Last year, due to the sharp deterioration in performance caused by COVID-19, the credit rating was downgraded from A- to BBB+. The rating outlook remains 'negative,' so there is a possibility of further downgrades depending on future performance.

Megabox Joongang’s borrowings increased significantly after investing in the new headquarters in Seongsu-dong in 2019. Borrowings, which were 130 billion KRW at the end of 2018, ballooned to 603.8 billion KRW by the end of the third quarter last year. Since last year, cash generation has sharply declined due to the COVID-19 crisis, increasing the burden of debt repayment. Although the company is responding to funding needs by increasing short-term borrowings such as commercial paper (CP) issuance, many debt maturities are lined up.

Megabox Joongang is reportedly planning an IPO with Shinhan Investment Corp. and Daishin Securities as underwriters to improve its financial structure. However, industry experts view the possibility of completion within this year as uncertain due to continued performance deterioration caused by COVID-19.

An IB industry official said, "An IPO will only be possible once COVID-19 ends and performance recovers," adding, "In the meantime, the burden of short-term borrowings will inevitably continue to increase."