Private Placement Bonds
The South Korean government decided to allow Hyundai Merchant Marine (HMM) to postpone the repayment of private placement corporate bonds worth 900 billion won (US$776.2 million) up to 2019. This is due to an exceptional clause that issuers can issue refunding for bonds, which have been issued until this year, if they want to do so, though the bond refinancing program, called the “quick corporate bond underwriting system,” will officially end at the end of this year in principle.
According to the financial authorities, HMM and the Korea Credit Guarantee Fund (KODIT) on Nov. 12, HMM will pay 20 percent of the principal, or 44.8 billion won (US$38.64 million), for 224 billion won (US$193.19 million) of its private corporate funds, whose maturity date was Oct. 22, first. Then it will extend the maturity after 2017 with the conversion issue of the remaining 179.2 billion won (US$154.55 million). In July, the financial authorities decided to end the quick corporate bond underwriting system, which has been implemented from 2013, this year. However, it contained the exceptional clause that bonds, which have been refunded until this year, can be refunded once again at the expiration. HMM has become the first company to use this clause. Accordingly, 30 percent of 179 billion won (US$154.55 million) of its private corporate bonds will be acquired by creditor banks, 10 percent by financial investment companies and the remaining 60 percent by KODIT. KODIT will combine with other regular corporate bonds and sell them to general investors in the type of primary collateralized bond obligations (P-CBO).
HMM also converted 136 billion won (US$117.29 million) out of 170 billion won (US$146.61 million) of its public offering corporate bonds, which were matured on the same day, to private placement bonds through the quick corporate bond underwriting system, and extended the expiration two years later. According to the clause related to conversion issues, HMM is able to repay only 20 percent of 136 billion won (US$117.29 million) in Oct. 2017, and extend the maturity of the remaining 80 percent until 2019 once again.
Therefore, HMM has a total of 864 billion won (US$745.15 million) of private placement corporate funds, the expirations of which have extended – 224 billion won (US$193.19 million) this year, 176 billion won (US$151.79 million) in 2016 and 464 billion won (US$400.17 million) in 2017.
With the maturity extension of private placement corporate funds once more, HMM is expected to ease the current liquidity crisis. Hyundai Group has faced the difficulty in debt repayment, which is scheduled to be done by the end of this year, as it failed to sell Hyundai Securities
Accordingly, the group announced the plan on the previous day to secure 450 billion won (US$388.1 million) of liquidity by selling stakes of subsidiaries owned by HMM and applying additional security loans. In terms of the size alone, the amount of repayments, which have been postponed through the exceptional clause of the quick corporate bond underwriting system, is more than doubled.
However, some say that there are fairness problems in corporate restructuring, since the benefits of the quick corporate bond underwriting system only go to HMM. Considering the fact that the Financial Supervisory Service recently asked banks to remove marginal firms, based on the credit risk evaluation index in the second half of the year, the excessive benefits are provided to a particular company.