9.5 trillion-debt Hotel Lotte issues another bond in three months…this time for a hefty premium

Hotel Lotte, one of the flagship companies of the Lotte Group (LOTTE), is holding a demand forecast for a KRW120 billion corporate bond issue on the first of next month. This will be its third corporate bond market fundraising so far this year. With nearly 9.5 trillion won ($9.5 billion) in borrowings and negative sentiment toward Lotte Group, market participants expect Hotel Lotte to issue bonds at a higher rate than the market average.

A view of Lotte Department Store and Lotte Hotel in Sogong-dong, Seoul. / News1

According to the investment banking (IB) industry on the 23rd, Hotel Lotte (AA-) will hold a demand forecast for a total of 120 billion won (up to 200 billion won) in corporate bonds, including 40 billion won in two-year bonds and 80 billion won in three-year bonds, on the first of next month. KB Securities (KB Financial), NH Investment & Securities, Shinhan Investment & Securities (Shinhan Holdings), and Korea Investment & Securities (Korea Financial Holdings) will jointly handle the demand forecast. The scheduled issuance date is June 9.

Previously, Hotel Lotte issued 300 billion won in public bonds in January and 100 billion won in private bonds in February. “The June bond issuance is due to the repayment of maturing borrowings and debentures,” said a representative of Hotel Lotte. Hotel Lotte is due to issue 280 billion won in bonds on June 26 and 80 billion won in bonds on June 8.

The market believes that concerns about Lotte Group’s financial health have not been fully resolved, forcing the company to raise funds at a higher rate than the average interest rate of private bond rating agencies. This means that the company will have to issue bonds at a premium and in bad conditions. Some say that Lotte, which has a high credit risk, is issuing bonds while it can, even at a higher interest rate, before the market deteriorates and makes it difficult for the group to raise funds.

According to the Financial Investment Association, the civilian interest rate for three-year AA- rated unguaranteed corporate bonds of Hotel Lotte is 4.12% (as of Feb. 22). On the other hand, the individual civil rate (the average of the rates assigned to a company’s corporate bonds by private bond rating agencies) for Hotel Lotte is 4.46%.

“The market is wary of Lotte Group,” said a financial investment industry insider, “and it’s hard to be optimistic that the June demand forecast will be good.” “There are still many institutions that are reluctant to invest in Lotte Group products,” said an IB industry insider.

Graphic=Son Min-gyun

There is also a possibility that Hotel Lotte may increase the amount of corporate bonds it issues in June to 200 billion won. This means that the company will try to raise more money even if it has to pay higher interest rates. Previously, in the January public offering, Hotel Lotte issued 300 billion won, double the amount, after forecasting demand for 150 billion won스포츠토토. At the time, it offered an interest rate band ranging from -30bp to +70bp over individual civilian interest rates. Based on the demand forecast, the issuance rate was determined at +20bp for 2-year bonds and 15bp for 3-year bonds, and was financed by ‘over-issuance’.

Another industry insider said, “Just as the corporate bond market suffered in the second half of last year due to the Legoland crisis, Lotte Group companies will find it difficult to raise funds if there is a crisis again, so they will try to increase the amount of corporate bonds they can issue while the market conditions are favorable, even if it means raising interest rates.”

However, some observers are optimistic that Hotel LOTTE is not facing the same difficulties as Lotte E&C and Lotte Chemical. The reopening means that the worst of the tourism industry has passed, so it should be easy for the company to raise funds in the future. “The hotel industry, of which Hotel Lotte is a part, has bottomed out and is rebounding, so the worst is over,” said Lee Hwa-jin, a researcher at Hyundai Motor Securities.

In January, Hotel Lotte agreed to lend 150 billion won to the asset-backed securitized term bond (ABSTB) purchase mechanism guaranteed by Lotte E&C to help the latter with its financing needs. As of the third quarter of last year, the company’s debt-to-equity ratio was 180.2 percent, and its borrowing dependency, the ratio of external borrowings to total capital, was 49.4 percent. Total borrowings amounted to 9.48 trillion won.

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