Korea's third-largest ethylene producer, Yeocheon NCC, faced a liquidity crisis but has overcome it with financial support from Hanwha and DL Group. However, the possibility of a credit rating downgrade has surfaced, leading to continued caution. Yeocheon NCC previously issued corporate bonds with a provision to repay the principal early if its credit rating is adjusted below BBB+. Currently, Yeocheon NCC's credit rating is A- with a 'negative' outlook, indicating a significant chance of being downgraded to BBB+.
According to the credit rating industry on the 13th, the corporate bonds of Yeocheon NCC set to mature within the year amount to 70 billion won. Next year, it must repay 315 billion won. Including long-term borrowing funds, the amount to be repaid next year increases to 517.5 billion won.
Until now, Yeocheon NCC has utilized corporate bonds and borrowing funds as operational capital. However, after the credit rating was downgraded from A to A- in December of last year, the conditions for financing worsened. As credit ratings decline, companies must pay a higher expense for raising funds. There has been no demand for bonds from Yeocheon NCC, and it has not been able to issue corporate bonds since October of last year.
As the financing conditions deteriorated, since March of last year, Yeocheon NCC has issued private corporate bonds with a condition for early repayment if its credit rating drops below BBB+. The maturity of the private corporate bonds with a forced repayment option amounts to 70 billion won this month and 35 billion won next May.
Currently, Yeocheon NCC's credit rating is A-, and the outlook is 'negative'. A 'negative' outlook indicates that even if the credit rating does not decline immediately, there is a strong likelihood of downward adjustment based on financial conditions.
Financial covenants attached to the public corporate bonds are also a variable. The 210 billion won public corporate bonds due in March next year are tied to a debt ratio maintenance requirement of no more than 400%. Yeocheon NCC's debt ratio worsened from 200% in 2022 to 331% last year.
However, the debt ratio improved to 280.5% at the end of the first quarter after capital was increased through a 200 billion won rights issuance last March. Total equity also improved from 719.6 billion won at the end of last year to 857.7 billion won in the first quarter of this year.
Oh Yoon-jae, a senior researcher at Korea Credit Rating, said, "If the liquidity response capability raises concerns without improvements in cash flow due to weakened self-financing capabilities, it could lead to rising worries. We will continuously review the performance trends in the second half of the year, future business outlook, and restructuring plans to reflect them in the credit rating."
Yeocheon NCC was established in April 1999 as a joint venture between Hanwha Group and DL Group. Currently, Hanwha Solutions and DL Chemical (formerly Daelim Construction) each hold 50% equity. Hanwha and DL are supplied with ethylene and propylene from Yeocheon NCC, but the supply contracts expired at the end of last year. As both Hanwha and DL blame each other for Yeocheon NCC's troubles, it remains uncertain whether their partnership will continue.