[Funding] Jeonju One Power, Split from Jeonju Paper, Refinances 160 Billion Won Debt

[Asia Economy Reporter Lim Jeong-su] Jeonju Won Power, a renewable energy company spun off from Jeonju Paper, has refinanced existing borrowings worth 160 billion KRW. As the major shareholders Morgan Stanley PE (Private Equity) and Shinhan Alternative Investment Management have consecutively failed to sell Jeonju Paper, the possibility of a separate sale of Jeonju Paper continues to be raised.

According to the investment banking (IB) industry on the 3rd, Jeonju Won Power recently received a loan of 160 billion KRW from a special purpose company (SPC) established under the sponsorship of DB Financial Investment. The loan maturity is three years, with 120 billion KRW of senior debt to be repaid in installments, and 40 billion KRW of subordinated debt to be repaid in a lump sum at maturity. Additionally, the SPC may demand early repayment of the loan after two years.

A view of Korea's first mixed-firing biomass combined heat and power plant located within the Jeonju Paper Jeonju Factory in Palbok-dong, Deokjin-gu, Jeonju-si, Jeollabuk-do.

Jeonju Won Power will lose the benefit of the term if its credit rating (effective credit rating) falls below BBB- or A3-. If the major lenders request, the loan must be repaid immediately even before maturity. Currently, Jeonju Won Power’s credit rating is BBB+, leaving three notches before the early repayment trigger.

The SPC issued asset-backed bonds or obtained asset-backed loans (ABL) using the loan principal and interest as underlying assets to secure loan funds to be executed to Jeonju Won Power. In this process, Jeonju Won Power provided credit support such as capital replenishment commitments to the SPC. It also agreed to supply additional liquidity if the SPC lacks funds to repay the asset-backed bonds and ABL.

Jeonju Won Power uses the funds raised in this way to repay existing borrowings. As of the end of last year, total borrowings amounted to 192 billion KRW, of which 160 billion KRW is identified as securitized borrowings. Most of the borrowings previously taken from KDB Industrial Bank have been repaid.

Currently, Jeonju Won Power’s shares are divided between holding companies established by Morgan Stanley PE and Shinhan Alternative Investment Management, holding 58% and 42%, respectively. The two major PE firms, which acquired Jeonju Paper through private equity funds funded by the National Pension Service, failed repeatedly to exit due to fund maturity. Consequently, they established Jeonju Won Power in 2019 by spinning off the combined heat and power generation division of Jeonju Paper. Accordingly, the major shareholders and shareholding ratios of Jeonju Paper and Jeonju Won Power remain the same.

Although the possibility of a separate sale of Jeonju Won Power continues to be raised, neither Jeonju Paper nor Jeonju Won Power has been sold yet. An IB industry official said, "Due to the decline of the newsprint business, it is difficult to find buyers for Jeonju Paper," and added, "In the case of Jeonju Won Power, the major shareholders will continue to attempt a sale."