SK D&D(210980) is pushing a rights offering. With the bond market tightening and regulations on real estate project financing (PF) strengthened, the company aims to improve its mid- to long-term financial structure through capital raising as funding conditions have become unfavorable.
SK D&D held an investor relations (IR) session at the Korea Listed Companies Association in Mapo District, Seoul, on the 15th and outlined the plan. Oh Yeong-rae, SK D&D chief financial officer (CFO), said, "Unfavorable funding conditions persist, making it difficult to carry out projects through traditional methods such as borrowing, and considering dilution of shareholder value, we are prioritizing a rights offering."
SK D&D said the need to secure cash liquidity has increased amid heightened market volatility. With the government's PF system overhaul increasing equity burdens for development projects and volatility in the funding market widening, it has become important to reduce borrowing fund and enhance business stability.
On top of that, bond redemptions coming due in the second half total 169 billion won. It is 107 billion won in Sep. and 62 billion won in Oct. As of the first quarter of this year, cash and cash equivalents the company can immediately use stand at 127.9 billion won. A surety for subrogated repayment of an interim loan worth 322.1 billion won at the Gunpo TriArts business site is also cited as a potential financial burden.
The funding environment is not favorable. Following the Legoland incident and subsequent restructuring in the PF market, investor sentiment toward BBB-rated corporate bonds has slumped further amid liquidity issues at JR Global REIT and JoongAng Group. Except for high-grade bonds, demand for corporate bonds has dropped sharply, and even the high-yield market, which prefers high interest rates, has become harder to tap than before.
In response, the company is pursuing both asset sales and business restructuring. The Seocho L project shifted from a sole venture to a joint structure using a REIT to reduce funding burdens, and 33.8 billion won was secured through a land sale. It is also pushing to sell low-yield assets such as the Sinsa-dong office and the Jinjeop site for 42 billion won and 69 billion won, respectively.
However, the company judged that asset sales and securitization alone have limits in fundamentally improving the financial structure. Oh, the CFO, said, "Asset sales can reduce future revenue sources, and asset securitization can lead to an increase in borrowing fund, so capital enhancement is necessary to secure long-term financial stability."
SK D&D plans to first pursue a rights offering. The size and timetable of the offering and whether the largest shareholder will subscribe have not been finalized and will be disclosed after board approval. Depending on the size raised and subscription results, the company is leaving the door open to additional funding and aims to complete the fundraising by Oct., taking market volatility into account.