Korea’s Shinsegae building unit to raise $478 mn to cut debts

South Korean retail giant Shinsegae Group’s building unit, suffering amid difficulties in the local real estate project financing sector, is set to raise 650 billion won ($478 million) through hybrid bonds to increase corporate equity capital to cut its debts to less than a quarter of their current value. 

Shinsegae Engineering & Construction Co. (Shinsegae E&C) said on Tuesday in a financial regulatory filing that its board of directors decided to issue the securities combining the characteristics of bonds and equities to improve its financial structure and secure liquidity.

Local brokerage houses – NH Investment & Securities Co., Korea Investment & Securities Co. and Shinhan Securities Co. – plan to buy the bonds, while Shinsegae E&C’s parent E-Mart Inc. is poised to provide cash deficiency support to the issuance.

Shinsegae E&C expected the hybrid bond sale to lower its debt ratio to lower than 200% from 807% as of the end of the first quarter.

“We are set to completely resolve our financial issues by securing additional liquidity of 650 billion won through the securities issuance,” said a Shinsegae E&C official. “We aim to keep winning profitable orders to improve earnings as management conditions stabilize.”

SHARES HIT SIX-MONTH HIGH

Shares in Shinsegae E&C ended up 10.5% at 12,310 won in the South Korean stock market, far outperforming the benchmark Kospi, which barely changed. The stocks surged as much as 25.5% to 13,980 won, their highest since November 2023.

Shinsegae Group ousted the construction unit’s CEO and appointed Vice President Heo Byung-Hoon, who has been managing the conglomerate’s finances, for the position in April to revive the company amid the deteriorating project financing environment. 

Shinsegae E&C has already raised more than 600 billion won so far this year before the hybrid bond issuance through various measures such as new bond issues and the sale of its leisure unit.

South Korean financial services companies and construction firms are exposed to a combined 200 trillion won worth of potential risks related to domestic real estate project financing, a big chunk of which is falling due between 2024 and 2025, according to Samjong KPMG.

Write to In-Hyeok Lee at twopeople@hankyung.com
 

Jongwoo Cheon edited this article.