Lotte Corp., which is carrying out a corporate governance reform, issued a total of 460 billion won (US$405.82 million) worth of commercial papers (CP) on April 11, with 130 billion won (US$114.69 million) worth of them carrying a maturity of three years. CP is a short-term unsecured promissory note which has a maturity period of less than a year, usually three months to six months.
When firms want to raise funds by issuing debts with more than a year of maturity, they usually go to the corporate bond market. However, Lotte issued CPs with a long-term maturity instead of corporate bonds. As Lotte has increased the size of CP issuance at a rapid pace, the proportion of long-term CPs has expanded as well, according to the data from the Korea Securities Depository (KSD). The amount of CP issues by Lotte went up from 290.50 billion won (US$256.29 million) as of July 5 last year to 830 billion won (US$732.25 million) now, with long-term CPs with a maturity of more than a year accounting for 32.5 percent of the total.
Lotte has never issued corporate bonds through a public offering since its foundation in October 2017. The company only issued 40 billion won (US$35.29 million) and 50 billion won (US$44.11 million) worth of bonds in a private placement, respectively, in October last year and February this year. Market watchers say that Lotte feels uneasy about issuing corporate bonds through a public offering as the firm was established less than two years ago.
Some say that this has to do with Lotte’s procedure to work on its corporate governance reform. Under the principle of “separation of industrial and financial capital,” Lotte is promoting sales of its financial subsidiaries, including Lotte Card Co. When a firm issues a corporate bond in a public offering, it has to submit a registration of securities and investment prospectus to the Financial Supervisory Service (FSS) and inform the market about key risks. However, it does not have to submit an investment prospectus when issuing CPs.
Lotte is expected to become more and more dependent on CPs in the future. The company has to acquire additional stakes in major affiliates as a holding company is required to have more than a 20 percent stake in companies under its control.