SEOUL, June 30 (Korea Bizwire) — A series of conglomerate affiliates are carrying out massive capital increases or experiencing credit rating downgrades due to a rise in their financial burden.
SK Innovation Co. held a board meeting last week where it decided to increase paid-in capital by 1.18 trillion won (US$901 million) through shareholder allocation as part of its efforts to secure investment funds and repay debts.
Brokerages like Kiwoom Securities and Hyundai Motor Securities downgraded their target price for the energy unit of SK Group, stating that the increase in paid-in capital would inevitably harm shareholder value.
Multiplex cinema chain CJ CGV Co. also decided to raise paid-in capital.
The affiliate of entertainment giant CJ Group plan to allocate 570 billion won through shareholder allocation and 450 billion won through third-party allocation as part of their fund-securing efforts.
CJ CGV has experienced net losses for five consecutive years since 2018, leading to a debt-to-equity ratio of 912 percent in the first quarter of this year.
Meanwhile, domestic credit rating agencies collectively downgraded the SB (Straight Bond) credit rating of Lotte Group affiliates.
This downgrade followed the credit rating reduction of Lotte Chemical Corp., the group’s core affiliate, from AA+ (negative) to AA (stable). The downgrade was a result of declining profitability and an increasing debt burden.
Furthermore, due to the ongoing slump in the real estate market, the number of cases where construction companies’ credit ratings are being downgraded is on the rise.
Market watchers have issued warnings that some conglomerate affiliates, which pursued excessive expansion and massive investment through mergers and acquisitions during a low-interest period, face the risk of financial difficulties due to challenges in fundraising.
“Conglomerate affiliates that expanded investments during the low-interest period should prepare for potential financial difficulties resulting from high interest rates and an economic slump,” said Hwang Sei-woon, a senior research fellow at the Korea Capital Market Institute.
J. S. Shin (firstname.lastname@example.org)