Hanssem LTV Test Postponement Negotiations Near Completion... Expected to Conclude This Month

[Asia Economy Reporter Park So-yeon] IMM Private Equity (PE) is nearing the conclusion of negotiations to be exempted from the loan-to-value (LTV) test on acquisition financing for Hanssem.

According to the investment banking (IB) industry on the 5th, IMM PE is facing an LTV test as stipulated in the financial covenants agreed upon with the lending consortium for the acquisition of Hanssem shares. If the LTV exceeds 75% in this test, IMM PE must pay a penalty interest rate of more than 1% per annum. The lending consortium may also demand loan repayment citing a breach of financial covenants.

IMM PE is pushing to inject approximately 100 billion KRW in additional funds to be exempted from the LTV test in the financial covenants. To this end, they are persuading the lending consortium, including Shinhan Bank which arranged the acquisition financing, as well as strategic investors (SI) such as Lotte Shopping and institutional investors who participated in the Hanssem acquisition. Overall, they are seeking consent from 30 creditor groups with conflicting interests and are also explaining the situation to the fund’s limited partners (LPs).

The Hanssem acquisition financing lending consortium is reported to have responded positively to IMM PE’s proposal. If they notify a loss of benefit due to exceeding the LTV threshold, the consortium would inevitably incur losses. It was also taken into account that the loan term was set for five years and less than one year has passed. The consortium is expected to apply penalties such as charging fees while encouraging IMM PE to inject additional capital. The negotiations are expected to conclude within this month.

Previously, IMM PE invested 400 billion KRW from the Rose Gold 4 Fund for the Hanssem acquisition, relying on SI Lotte (300 billion KRW) and financial investors (FI) in the lending consortium for the remainder. They borrowed 837 billion KRW from the consortium using Hanssem shares as collateral, setting quarterly LTV limits between 75% and 85%. Subsequently, due to the global economic downturn, Hanssem’s stock price fell, causing the LTV to already exceed the threshold.

Meanwhile, Hanssem turned to a deficit in the third quarter of this year and is pursuing internal cash securing measures to improve its structure through new businesses. Kim Jin-tae, CEO of Hanssem, recently disclosed plans to raise up to 400 billion KRW by selling real estate assets including the Seoul Sangam and Bangbae office buildings.