420 Billion Secured Loan + 450 Billion Electronic Short-Term Bonds
Low-Cost Fundraising Without Capital Increase
Strategy to Further Reduce Borrowing Rates and Improve Dividend Yield
Hanwha REITs (Hanwha Entrusted Management Real Estate Investment Company) has raised approximately 870 billion KRW in acquisition funds for the Hanwha Group headquarters building in Janggyo-dong, Seoul, entirely through borrowings. The strategy is to increase the REIT's dividend yield by borrowing funds at low interest rates without conducting a rights offering, which would impose additional financial burdens on the major shareholder or cause dilution of shareholding.
According to the investment banking (IB) industry on the 28th, Hanwha REITs secured a 420 billion KRW secured loan using the Janggyo-dong Hanwha Building as collateral. Banks participating in the loan included SC First Bank, Woori Bank, and Shinhan Bank. Simultaneously with the secured loan, a 450 billion KRW electronic short-term bond with a 3-month maturity was also issued. Korea Investment & Securities underwrote 350 billion KRW worth of the short-term bonds, and Hanyang Securities took 100 billion KRW worth.
Hanwha REITs plans to use most of the raised funds for the acquisition payment of the Hanwha Building. The building's previous owner was Hanwha Life Insurance, and Hanwha REITs agreed to acquire the building for 807 billion KRW. Initially, it was expected that funds would be raised by mixing rights offerings and secured loans about half and half, but Hanwha REITs arranged the entire acquisition payment through borrowings.
This is a strategic decision based on the ability to raise funds at lower interest rates compared to the past due to the decline in market interest rates. Secured loans have lower interest rates than unsecured loans or corporate bonds, and the issuance rate for short-term bonds has dropped to around 3% (3.8%). If market interest rates fall further after three months, Hanwha REITs can issue short-term bonds at even lower rates or refinance with long-term corporate bonds.
An IB industry official commented, "If a rights offering is conducted, existing shareholders must either inject additional funds proportionate to their shareholding or accept dilution of their shares," adding, "It appears they judged that the cost of share dilution is higher than the cheaper borrowing interest rates."
The Janggyo-dong Hanwha Building is located a 2-minute walk from Euljiro 1(il)-ga Station on Subway Line 2, along Cheonggyecheon Stream. It has a total floor area of approximately 25,000 pyeong (about 82,500 square meters) and is used as the Hanwha Group headquarters, boasting a 100% occupancy rate. The sale price per pyeong (3.3㎡) is reported to be 35.9 million KRW. Hanwha Asset Management explained that considering major office buildings in Gwanghwamun have been traded at 34 to 40 million KRW per pyeong over the past 3 to 4 years, the price is set at a level similar to the past.
With this acquisition of the Hanwha Building, Hanwha REITs will significantly increase the scale of its assets. Previously, it held four properties: Hanwha General Insurance's Yeouido building, Hanwha Life Insurance's locations in Nowon-gu, Seoul, and branches in Anyang, Bucheon, and Guri in Gyeonggi Province. Most of these are leased long-term (master lease) by Hanwha Group affiliates, and major corporations and public institutions such as the Korea Employment Agency for the Disabled, National Pension Service, Samsung Card, and Samsung Fire & Marine Insurance occupy the buildings, resulting in a low vacancy risk.
An IB industry official forecasted, "With stable rental income and low-cost financing, the dividend yield will improve," adding, "The five-year average annual dividend target yield set at around 6-7% is expected to be achieved steadily."
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