[Funding] LS I&D Refinances 100 Billion Won Loan Using Collateral Including Anyang LS Tower

[Asia Economy Reporter Lim Jeong-su] LS I&D has refinanced secured bonds worth 100 billion KRW using collateral such as the Anyang LS Tower. Due to a decline in credit rating and reduced ability to raise funds independently, the company is refinancing borrowings by securing assets like real estate and accounts receivable.

According to the investment banking (IB) industry on the 13th, LS I&D recently issued secured bonds worth 100 billion KRW to a special purpose company (SPC) established by the Korea Development Bank. The maturity is three years with a lump-sum repayment at maturity, but early repayment is also possible.

LS I&D is known to have provided real estate collateral including the Anyang LS Tower, where LS Group affiliates are located, and factory sites for funding. The real estate is entrusted as collateral to the Korea Development Bank, and the trust beneficiary rights received are provided as collateral.

LS affiliates such as LS Cable & System are tenants in the Anyang LS Tower. Taepyungyang Appraisal Corporation previously appraised the property value at 160 billion KRW. Although the loan-to-value (LTV) ratio of the secured bonds is about 62% compared to the appraisal value, the collateral value is considered to have increased recently due to land price appreciation.

The Korea Development Bank acquired secured bonds worth 100 billion KRW through the SPC and then issued asset-backed loans (ABL) worth 70 billion KRW and asset-backed commercial papers (ABCP) worth 30 billion KRW based on these assets to raise funds for bond acquisition. The Korea Development Bank provided credit support to the SPC during this process.

The raised funds were used to refinance existing borrowings. LS I&D first issued secured bonds in 2015 and has been refinancing bonds with the same structure every three years. It is interpreted that due to recent credit deterioration and reduced independent funding ability, the company continues to refinance without repaying existing secured bonds.

Since its spin-off from LS in 2013, LS I&D’s financial condition has worsened due to poor performance and increased investments, leading to credit rating deterioration. Although it previously issued some corporate bonds with a BBB+ credit rating, it has not received any credit rating since last year when the outlook was changed to ‘negative’.

In 2019, LS I&D made an early repayment of 90 billion KRW in hybrid capital securities classified as equity, and recorded a net loss of 37 billion KRW that year, significantly reducing its capital base. As a result, the consolidated debt ratio exceeds 800%. Net borrowings, excluding cash equivalents from total borrowings, reach 760 billion KRW, which is more than 20 times the average annual operating profit over the past three years.

An IB industry official said, "Real estate, deposits at financial institutions, and accounts receivable are provided as collateral for borrowings," and added, "LS Group affiliates’ support and assets will continue to be used as collateral to refinance borrowings and raise operating funds."