BNK Investment & Securities as Lead Manager
POSCO Inter and Hotel Lotte Joint Investment
Myanmar Yangon Hotel Operating Funds Expected
Prolonged Net Losses Due to Coup, etc.
Ongoing Financial Support Burden on Investors
POSCO International secured a foreign currency loan worth $57 million (approximately 78 billion KRW) through its overseas affiliates. This funding was necessary for the Myanmar Yangon hotel established jointly with Hotel Lotte. Since its inception, the Myanmar Yangon hotel has continuously accumulated losses, becoming a sore spot for POSCO International. Despite long-term deficits, continuous capital injections have led to evaluations likening it to "pouring water into a bottomless pit."
According to the investment banking (IB) industry on the 13th, POSCO INTERNATIONAL Global Development, one of POSCO International's overseas affiliates, recently received a foreign currency loan with BNK Investment & Securities and others as lead managers. The loan amount is $57.31 million (approximately 78 billion KRW) with a maturity of one year.
The lead manager, BNK Investment & Securities, provided the dollar loan to POSCO International Global through a special purpose company (SPC) it established independently. At the same time, the SPC issued securitized notes using the loan principal and interest as underlying assets (a type of collateral) to raise loan funds. Institutional investors who invested in the securitized notes effectively funneled funds through the SPC to POSCO International Global.
The foreign currency loan's exchange rate fluctuation risk was hedged by the SPC entering into a foreign currency swap (CRS) contract with Kiwoom Securities. Without exchange rate hedging, sudden exchange rate changes could significantly increase the burden of repaying the loan principal and interest. From the lending financial institutions' perspective, hedging is necessary as the amount receivable could decrease.
Hotel Lotte, an affiliate of Lotte Group, provided side support for this loan. Hotel Lotte offered a capital replenishment commitment for the foreign currency loan received by POSCO International Global. This commitment means that if POSCO International Global fails to properly repay the loan, Hotel Lotte will lend the necessary funds subordinately for repayment. In case of loan repayment failure, Hotel Lotte also agreed to bear compensation liability. Essentially, Hotel Lotte acted as a guarantor for POSCO International Global's debt.
Hotel Lotte is a joint investor with POSCO International Global. Currently, POSCO International holds a 75% stake, and Hotel Lotte holds 25%. In 2017, POSCO International established a five-star large-scale hotel in Yangon, Myanmar through a local affiliate, with Hotel Lotte jointly investing and participating in the project. The major shareholder, POSCO International, manages the hotel business, while Hotel Lotte is responsible for entrusted operations. The entrusted operation contract period lasts until 2027.
The Myanmar Yangon hotel has not escaped long-term net losses due to the COVID-19 pandemic and the military coup. It recorded net losses of -16.8 billion KRW in 2020, -25.7 billion KRW in 2021, and -7.6 billion KRW in 2022. As local hotels faced similar situations, many investment hotels were put up for sale, but due to a lack of buyers, sales have been difficult.
Despite the deficit situation, the burden of funds needed for loan principal and interest repayments and operating expenses continues. POSCO International and Hotel Lotte continue to provide guarantees for POSCO International Global's external borrowings. An IB industry insider stated, "Until the hotel is sold or performance normalizes, POSCO International and Hotel Lotte have no choice but to share debt guarantees," adding, "Currently, the company's borrowings and guarantee amounts are continuously increasing."
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