Rising Interest Rates and Credit Downgrade Concerns... Alternative Means for Corporate Bonds and Commercial Papers
Various Methods Including Corporate Purchase Cards and Affiliate Accounts Receivable Sales
Large corporations are increasingly using accounts receivable to raise funds. This trend is interpreted as the securitization of accounts receivable becoming popular due to rising market interest rates and the deterioration of individual companies' credit ratings, which results in relatively lower interest cost burdens.
Shinhan Card secured liquidity worth 80 billion KRW on the 10th by securitizing Hyundai Construction's card accounts receivable. When Hyundai Construction purchases goods using a purchase-only card, it is recorded as accounts receivable for Shinhan Card. Shinhan Card transferred the accounts receivable to a special purpose company (SPC), which then issued asset-backed securities based on these receivables. When Hyundai Construction pays 50 billion KRW and 30 billion KRW in card payments in October this year and April next year, respectively, these funds will be used to repay the asset-backed securities. Kiwoom Securities acted as the lead manager for this funding method.
On the same day, Hyundai Card raised 41.6 billion KRW and 12.8 billion KRW by securitizing purchase-only card accounts receivable used by LG Display (LGD) and Hyundai Special Steel, respectively. Hi Investment & Securities was the lead manager for LGD's accounts receivable securitization, while BNK Investment & Securities took the lead for Hyundai General Special Steel, handling investor recruitment and other related funding tasks.
Corporate purchase cards are a payment method based on credit in transactions between companies. Unlike past transactions involving promissory notes or credit sales, card companies mediate payments to reduce payment risks. Purchase-only card securitization involves card companies securitizing the accounts receivable generated from corporate card usage to raise funds.
However, approval from the card-using company is required, and payment can be deferred, making it useful for corporate liquidity management. Above all, it has the advantage of securing funds without increasing borrowings. An investment banking (IB) industry official said, "In the past, purchase cards were often used by card companies to support the liquidity of affiliated companies," adding, "Recently, companies use them as one of the routine funding methods according to their financial plans."
Besides corporate purchase cards, cases of securing liquidity by utilizing accounts receivable arising from transactions between affiliates are also increasing. SK Incheon Petrochemicals recently raised 180 billion KRW by transferring 500 billion KRW worth of accounts receivable from selling petroleum products to SK Energy to an SPC and issuing asset-backed securities. Samsung C&T and Samsung Engineering have secured liquidity by utilizing accounts receivable from construction work at Samsung Electronics' semiconductor factories.
An IB industry official said, "As market interest rates have risen rapidly recently and financial companies and investment institutions have adopted a more conservative stance on fund supply, the burden on companies to secure funds has increased," adding, "Accounts receivable securitization has the advantage of quickly securing liquidity without increasing borrowings by selling assets, so demand has been rising recently." The official also warned, "However, if companies excessively use future cash flows in advance, their future liquidity response capability may deteriorate."
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