[Funding] Hansol Tech, 'I-ones Management Rights Acquisition', Issues Series of Small Private Bonds

M&A and Investment Expansion Including Vietnam Plant 2
Low Credit Rating Limits Self-Financing Ability
K-Sure Continues Liquidity Support

Hyunsoon Park, CEO of Hansol Technics

[Asia Economy Reporter Lim Jeong-su] Hansol Technics, a subsidiary of Hansol Group, is issuing a series of private bonds worth around 10 billion KRW each with the support of the Korea Credit Guarantee Fund. The company’s funding needs have significantly increased due to the acquisition of a controlling stake in semiconductor and display parts manufacturer I-ONE-S and investment in its second factory in Vietnam.

According to the investment banking (IB) industry on the 7th, Hansol Technics issued private bonds worth 7 billion KRW today, with Kiwoom Securities as the lead underwriter. The bonds have a maturity of 1 year and 6 months and carry an interest rate of 2.90%. On December 23 last year, the company also issued bonds of the same maturity worth 10 billion KRW at an annual interest rate of 3.20%. In just about two weeks, it issued approximately 17 billion KRW in private bonds over two rounds.

In November last year, Hansol Technics also issued private bonds twice, worth 30 billion KRW and 5 billion KRW respectively. Most of these private bonds were used as underlying assets for bond-backed securities (P-CBO) issued with guarantees from the Korea Credit Guarantee Fund. The fund purchases private bonds from dozens of companies in urgent need of liquidity and then issues P-CBOs using the principal and interest repayments of these bonds as underlying assets.

Hansol Technics’ consecutive fundraising at the end of last year and the beginning of this year is due to increased funding needs from mergers and acquisitions (M&A). The company recently decided to acquire a 34.47% controlling stake in semiconductor and display parts manufacturer I-ONE-S. It plans to acquire existing major shareholder shares (old shares) for 86.6 billion KRW and participate in a third-party allotment capital increase to secure additional new shares.

In early December last year, the company paid a deposit of 34.5 billion KRW to the existing largest shareholder, CEO Lee Moon-gi’s side. On the 14th of this month, it must pay the remaining 52 billion KRW for the acquisition of old shares. On the same day, by injecting 40.9 billion KRW in the third-party allotment capital increase, the promised stake acquisition will be completed. The total funds to be spent for the stake acquisition on the 14th amount to 92.9 billion KRW.

Hansol Technics has stated that it will raise the funds needed for the stake acquisition through cash on hand and external borrowings. As of the end of the third quarter last year, the company held approximately 65 billion KRW in cash equivalents on a consolidated basis. Even if all of this is used for the stake acquisition, an additional 60 billion KRW in funding is required.

However, with a credit rating of BBB+, large-scale bond issuance is not easy. An IB industry insider said, "Hansol Technics will continue to have increased funding needs for some time due to capital expenditures (CAPEX) for the construction of the second factory in Vietnam related to the liquid crystal display module (LCM) business, as well as M&A."

Hansol Technics is experiencing an increasing debt burden due to M&A and CAPEX investments. The net debt, which is total borrowings minus cash equivalents, stood at approximately 163 billion KRW as of the end of the third quarter last year. This is an increase of about 130 billion KRW over three quarters from 33.6 billion KRW at the end of 2020.

Short-term repayment burdens have also increased. As of the end of the third quarter last year, short-term borrowings and current portion of long-term debt that must be repaid or refinanced within one year amounted to 143.7 billion KRW out of total borrowings of 228 billion KRW. The short-term repayment burden is mainly concentrated in the second and third quarters of this year.

A credit rating agency official said, "Although the short-term debt repayment burden will increase in the short term, there should be no significant difficulty in liquidity management due to cash on hand and external funding."