Issuance of Corporate Bonds and Hybrid Capital Securities at 7-9% Interest Rates
Slow Credit Rating Recovery Due to Accumulated Deficits
Multiplex companies such as CJ CGV and Lotte Cultureworks are struggling to secure funding as they have not been able to significantly improve their performance and financial structure even after the COVID-19 endemic (periodic outbreak of infectious diseases). CJ CGV, which recently succeeded in a rights offering, is reducing the issuance of hybrid capital securities it previously issued while increasing the issuance of general corporate bonds, whereas Lotte Cultureworks continues to issue high-interest perpetual bonds.
According to the investment banking (IB) industry on the 21st, CJ CGV privately issued 50 billion KRW worth of 2-year maturity private corporate bonds at an interest rate of 7.25%. Earlier, on the 15th, it publicly issued 200 billion KRW worth of 2-year maturity bonds and then proceeded with additional private bond procurement within a week. The funds raised will be used to repay existing corporate bonds and to exercise preemptive rights for 10 branches, including the Gangneung branch.
In October, CJ CGV’s overseas subsidiary, Turkey Mars, provided a guarantee for issuing 100 billion KRW worth of hybrid capital securities. Due to the extremely poor performance of local cinemas in Turkey, financial support has been continuously provided. These hybrid capital securities have a 30-year maturity, and the issuing company can exercise a call option to redeem early starting two years after issuance. If early redemption is not made after two years, the interest paid to investors must be significantly increased.
Lotte Cultureworks, a multiplex company affiliated with the Lotte Group, is also continuing high-interest financing. On the 15th, Lotte Cultureworks privately issued 30 billion KRW worth of 30-year maturity hybrid capital securities at an interest rate of 8.10%. Lotte Cultureworks can exercise a call option for early redemption after two years, and if the call option is not exercised, the interest rate structure increases to double digits. On the same day, it also issued 10 billion KRW worth of 1-year maturity private bonds at 6.70% interest.
Earlier, on the 14th, Lotte Cultureworks issued 50 billion KRW worth of hybrid capital securities. In April and June, it also issued 40 billion KRW and 30 billion KRW worth of hybrid capital securities, respectively. The interest rates for the hybrid capital securities issuance were all set between the high 7% range and the low 8% range.
The reason multiplex companies have no choice but to raise funds at high interest rates is due to rising market interest rates and slow financial improvement. CJ CGV conducted a large-scale rights offering, reducing its borrowings from 3.2 trillion KRW in 2021 to about 2.5 trillion KRW by the end of the third quarter this year. However, its performance still continues to show losses, failing to recover its deteriorated credit rating.
Lotte Cultureworks also saw its credit rating fall due to accumulated losses after COVID-19. Megabox JoongAng, another multiplex company, has been unable to properly secure funding due to a significant deterioration in its credit rating. An IB industry official said, "Even after the end of COVID-19, cinema attendance has not recovered to pre-COVID levels, so borrowings have not been significantly reduced," adding, "Credit rating improvement will only be possible if performance turns profitable."
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