CJ CGV has a borrowing fund of about 1 trillion won that must be repaid within a year. Of this amount, 265 billion won must be paid back this year.
The problem is that CGV's financial condition makes it difficult to repay the borrowing fund. CGV intends to improve its performance through its core businesses such as 4DX.
According to the Financial Supervisory Service on the 29th, CGV has a borrowing fund of 997.7 billion won due for repayment within one year. CGV's repayment of short-term borrowings is 638 billion won, liquidity bonds are 261.7 billion won, and liquidity long-term borrowings amount to 98 billion won. Of this, 265 billion won is debt that must be repaid this year.
The issue is that CGV's financial situation is not good. CGV's liability as of the second quarter this year is 3.3265 trillion won, which is six times its equity of 534.5 billion won.
Due to the nature of the film industry, theater lease fees are recorded as lease liabilities, resulting in higher liabilities compared to other industries. However, even excluding CGV's lease liability of 1.0536 trillion won, the total liability is still close to 2 trillion won, and the debt ratio reaches about 400%, which is double the typical stable level of 200%.
Liquid assets that can be converted into cash within a year total only 826.3 billion won. Cash assets are 332.7 billion won, accounts receivable are 239.9 billion won, and combining other liquid assets and other liquid financial assets gives about 230 billion won. Even if trying to repay current liabilities with liquid assets, there is a shortfall of 171.4 billion won.
CGV has three main options to repay its liabilities. It can negotiate with the financial institutions it borrowed from to extend the maturity through a 'rollover', borrow the same amount from other financial institutions for 'refinancing', or borrow from its parent company CJ.
However, both rollover and refinancing are challenging. In July, CGV attempted to issue a 100 billion won unsecured bond with an interest rate of 5.45–5.6%, but no one participated in the subscription, leaving the entire amount for the underwriter.
Experts believe that the inability to secure the 100 billion won was due to the company's poor financial condition. This indicates that it is difficult to raise funds in the market due to high risks.
Kim Bum-jun, a professor of accounting at Catholic University, noted, "Due to the company's poor financial condition, to secure funds through rollover or refinancing, interest rates need to be raised, short-term bonds must be issued, and collateral needs to be provided." He stated that the current interest rate of 5% is considered low relative to the risks.
It is also not easy for CJ, the parent company, to increase its capital. Recently, an amendment to the Commercial Act expanded the duties of corporate directors to shareholders; thus, if they invest in loss-making subsidiaries, it could be perceived as failing to fulfill their fiduciary duties. As of the first half of this year, CJ's available liquid assets stand at 19.1 billion won on a separate basis and 13 trillion won on a consolidated basis.
It is also not easy to repay debts through earnings. This is because its core business competitiveness continues to decline. CGV's revenue on a separate basis in the first half of this year decreased by 28% to 270.1 billion won from 373.8 billion won in the same period last year. The operating loss amounted to 48.3 billion won, a fourfold increase compared to 10.9 billion won in the same period last year.
The recovery of performance in the second half also appears distant. CGV emphasized in July that government movie ticket discount coupons, along with anticipated films such as 'My Daughter is a Zombie' and 'Omniscient Reader's Viewpoint' would improve performance from the summer peak season. However, apart from 'My Daughter is a Zombie', other films released in the second half did not perform well, and there was no significant recovery in demand after the issuance of movie theater discount coupons.
Choi Min-ha, a researcher at Samsung Securities, stated, "While the issuance of movie ticket discount coupons to enhance culture and arts consumption and the fact that some films have surpassed 4 million viewers invigorated the atmosphere, meaningful recovery in demand is still not evident due to structural market trends."
In this context, the sale of CGI Holdings, which owns profitable subsidiaries, is becoming a reality. CGI Holdings has subsidiaries in Vietnam, Indonesia, and China, which accounted for about 35% of its revenue and operating profit as of 2024. There are concerns that the group's cash cow may disappear as the authority to sell CGI Holdings, which has a high revenue ratio, was transferred to a private equity fund in July.
Earlier, CGI Holdings conducted a paid-in capital increase in 2019, where the consortium of MBK Partners and Mirae Asset Securities secured 28.57% equity, necessitating the company to be listed on the Hong Kong Stock Exchange by June 2023 at over 2 trillion won.
However, failing to meet these conditions, CJ CGV now faces a situation where it must either buy back equity by guaranteeing a certain revenue or the financial investor (FI) has the right to sell to a third party, combined with the largest shareholder's share.
CJ CGV ultimately abandoned exercising the call option, and the consortium of MBK Partners and Mirae Asset Securities secured the authority to sell their shares, including those held by CJ CGV, to a third party.
CGV stated, "We will build competitiveness by providing unique experiences that cannot be enjoyed at home or on mobile, based on 4DX and ScreenX," adding, "In Korea, we will continue our efforts to maximize profitability based on a revenue-centered management strategy."