Below BBB
The Dongbu Group and Hyundai Group’s corporate bonds (CBs) account for 40 percent of over 3 trillion won (US$2.84 billion) worth of sub-BBB-level corporate bonds that will mature this year.
Close attention will follow, as the two groups have their soon-to-mature bonds that constitute a high portion among companies that have levels which have been adjusted to below BBB, which is the minimum level for investment eligibility.
Despite the two groups’ efforts to get out of the controversy over their financial viability, financial circles are still shrouded in pessimism.
According to the Korea Securities Depository on April 2, the current issuing balance stands at 3.2 trillion won (US$3 billion), out of 3.3 trillion won worth of all CBs below BBB+ level, which are scheduled to mature this year.
The highest portion of these CBs came from Dongbu Group, with CBs worth 600 billion won (US$567 million), accounting for 18.76 percent of the total, followed by Hyundai Group, with 570 billion won (US$530 million) accounting for 17.82 percent.
Hanjn Heavy Industries and Construction stood at 14.07 percent of the total with 450 billion won (USD$425.3 million) in CBs that will mature this year.
Dongbu and Hyundai alone took up 36.57 percent of the total CBs to mature, and if joined by Hanjn Heavy Industries and Construction, they amount to more than 50 percent.
To be specific, within the group, Dongbu Steel Co. had issued the biggest portion of the CBs to mature this year, standing at 210 billion won (US$198 million). The company recently was embroiled in a rumor that it might be acquired by POSCO.
Other companies within Dongbu Group with CBs to mature this year included Dongbu CNI, Dongbu Construction, Dongbu Farm Hannong, and Dongbu Metal.
Within Hyundai Group, the company with the largest amount of bonds to mature is Hyundai Merchant Marine Co., with 420 billion won (US$397 million), out of the group’s total of 570 billion won (US$539 million). Hyundai Logistics Co. and Hyundai Elevator Co. also had CBs that will mature this year with 100 billion won (US$94.5 million) and 50 billion won (US$47.25 million), respectively.
Dongbu Steel and Dongbu Construction’s CBs have the BBB- level, Dongbu CNI has BBB, Dongbu Farm Hannong and Dongbu Metal have BBB+, while Hyundai Merchant and Marine, Hyundai Elevator, and Hyundai Logistics are evaluated as BB+.
Both groups announced their plans for large-scale restructuring, but the industry is delaying their evaluation.
Both companies also expressed their will to sell various affiliates and affiliates’ stakes, but were met by a negative response doubting their feasibility.
One industry associate said, “Hyundai Merchant Marine Co. accounts for a big portion of Hyundai Group, making it difficult to judge how all these affiliates will recover. Sales of affiliates may lower the group’s competitiveness in the mid to long run, so it cannot be viewed as a completely positive thing.”
Another associate pointed out, “Their [Dongbu’s] plan to sell Dongbu Steel’s Incheon factory to POSCO may be interpreted as a telltale sign showing the group’s financial struggles. It is doubtful that forced measures like that will have a good effect on restructuring.”