Returning to the corporate bond market after a year, Lotte Construction wiped away the humiliation of zero orders last year.
According to the investment banking (IB) industry on the 19th, Lotte Construction raised 151 billion won in a book-building for 50 billion won in unsecured bonds that day. That is more than three times the planned amount.
With a credit rating of "A (stable)," Lotte Construction had planned to issue a total of 50 billion won in public offering bonds this time. It consisted of 30 billion won in one-year notes and 20 billion won in 1-year-6-month notes. The desired rate band was set at the arithmetic average of Lotte Construction's individual fair value yields presented by four private bond valuation agencies one business day before the subscription date, plus or minus -30 to +30 bp.
With the favorable book-building results, Lotte Construction plans to consider increasing the issue size to as much as 100 billion won. It plans to use the funds raised for debt repayment.
Lotte Construction is said to have devoted substantial internal effort to this public offering bond book-building. With no institutional orders in last year's book-building, the goal this time was to use the issuance as a chance to restore market trust. It was also reported to have engaged actively with institutional investors ahead of the book-building. It is said to have actively leveraged existing partnerships maintained with the financial sector.
The lead managers are seven firms: NH Investment & Securities, KB Securities, Mirae Asset Securities, Korea Investment & Securities Co., Samsung Securities, Kiwoom Securities and Hana Securities.
Meanwhile, Lotte Construction failed to secure even a single order from institutional investors in a 110 billion won public offering bond book-building conducted in June last year. At the time, it solicited 65 billion won in one-year notes and 45 billion won in 1-year-6-month notes, presenting desired annual rate bands of 5.4%–5.7% and 5.6%–5.9%, respectively, but the entire amount went unsold. In a subsequent additional subscription, it secured demand for only 20 billion won, and the remaining 90 billion won was taken on by the lead manager and underwriting syndicate.
The market sees improved performance and financial structure this year as influencing the tone of this book-building. On a consolidation basis, Lotte Construction's operating profit in the first half of this year was 172.8 billion won, more than four times the 40.9 billion won in the same period last year. The liability ratio also fell from 186.7% at the end of last year to 162.8% at the end of the second quarter this year.
The burden related to real estate project financing (PF) is also on a declining trend. Lotte Construction's PF contingent liabilities fell by about 727.6 billion won, from the 3.1 trillion won range at the end of last year to 2.4262 trillion won at the end of the second quarter this year. Converting major business sites to main PF reduced contingent liabilities.
The industry is paying attention to the fact that Lotte Construction returned to the public corporate bond market even though it could have used other funding methods. Although there are alternatives such as bank loans, private placement bonds and commercial paper (CP), choosing a public bond issuance subject to open evaluation by institutional investors is seen as an attempt to have the market confirm its improved performance and financial structure.