Homeplus, MK Electronics, and 238 Companies Raise 376 Billion KRW via Private Bonds Guaranteed by K-Sure

Credit Ratings Drop and Interest Rates Rise, Surge in Loan Guarantee Applications
Mid-sized Companies Raise Emergency Funds at 4-7%, Small Businesses at 5-8%
Guarantee Limits Due to Default Concerns... Used as One of the Financing Methods

Hundreds of small and medium-sized enterprises, along with mid-sized companies such as Homeplus and MK Electronics, have secured a total of 376 billion KRW in funding backed by government guarantees. Many companies that find it difficult to raise funds independently due to credit rating downgrades were included as beneficiaries of this guarantee-based financial support.

According to the investment banking (IB) industry on the 24th, the Korea Credit Guarantee Fund (KODIT) will issue Primary Collateralized Bond Obligations (P-CBO) worth 376 billion KRW on the 30th. To facilitate this, private bonds issued by 19 mid-sized companies and 219 small and medium-sized enterprises will be acquired through a Special Purpose Company (SPC). Subsequently, KODIT will provide guarantees to the SPC, which will issue senior and subordinated CBOs according to the repayment priority.

Companies that issued private bonds with guarantees will repay the funds at maturity, which will then be used to repay principal and interest to CBO investors. Senior CBO investors will be repaid first, and subordinated CBO investors will receive any remaining funds after all senior investors have been fully repaid.

Mid-sized companies issuing private bonds with KODIT guarantees include Homeplus, MK Electronics, Seojin Industry, and Korea Rental. Notably, Homeplus, rated BBB, secured the largest amount among mid-sized companies with 30 billion KRW at an interest rate in the high 4% range. Korea Rental also raised 10.5 billion KRW at a similar high 4% interest rate.

Other mid-sized companies benefiting from KODIT guarantees and raising funds in the range of 10 to 15 billion KRW include OEM clothing manufacturer Paenco, electronic parts maker MK Electronics, automotive parts manufacturer Seojin Industry, recently acquired automotive parts company D.H. Autoread (formerly Daeyu AP) under the D.H. Group, and optical communication cable company TMC.

The private bond issuance interest rates for mid-sized companies ranged from the high 4% to high 6% levels. Small and medium-sized enterprises, including Hyungji Elite, saw private bond interest rates set between the high 5% and below 8% range. Kiwoom Securities, Hyundai Motor Securities, Hi Investment & Securities, IBK Investment & Securities, Yuanta Securities, Woori Comprehensive Financial, and Korea Asset Investment Securities were responsible for credit evaluations and interest rate determinations for these companies’ private bond issuances.

Since last year, the number of companies applying for KODIT guarantees has increased due to high interest rates and economic downturns. This is interpreted as a rise in companies facing difficulties securing funds on their own credit due to deteriorating credit ratings. As interest rates, which had been falling earlier this year, have started to rise again, the financial burden on companies for raising funds is also increasing.

An IB industry official commented, "Due to concerns about increasing default rates on guaranteed loans or private bonds, KODIT’s guarantee limits inevitably face restrictions." The official added, "While the advantage of KODIT guarantees is that companies can raise funds at low interest rates, the guarantee limits are not sufficient for companies to secure adequate funding." The official further noted, "For this reason, KODIT guarantees are being used as one of several financing methods."