Mid-sized construction company (ranked 30th in the 2024 construction ability evaluation) HL D&I Hanla will push for the issuance of corporate bonds worth 60 billion won next week. This will be the second bond issuance in five months since the issuance of 81 billion won in corporate bonds in January.
HL D&I Hanla recorded an earnings shock, with net profit in the first quarter of this year falling more than 70% compared to the previous year. The dependency on net borrowing also continues to rise, nearing 40%. There are opinions in the credit rating industry suggesting that caution is needed regarding Hanla, which has many independent projects and a business structure that can significantly change cash flow depending on sales performance.
According to the Financial Supervisory Service and the credit rating industry on the 9th, HL D&I Hanla plans to issue non-name, interest-bearing, unsecured public bonds '156-1th' and '156-2th' on the 17th. The 156-1 bond, which matures on June 17, 2026, is planned to be issued at a size of 40 billion won, while the 156-2 bond, which matures on December 17, 2026, is expected to be issued at 20 billion won. Hanla plans to determine the final issuance interest rate following demand forecasting. Kiwoom Securities, KB Securities, and Korea Investment & Securities will serve as co-lead underwriters.
This is Hanla's second corporate bond issuance this year. Previously, it issued 81 billion won (149-1th and 149-2th) in corporate bonds in January. At that time, NH Investment & Securities, Korea Investment & Securities, and Industrial Bank shared the aggregates.
An official from HL D&I Hanla said, "In January, there was more than double the demand for the public bond issuance, leading to a successful outing. This time, as Industrial Bank plans to participate as an underwriter through its corporate bond support program, stability for the issuance has been secured, and we expect it to be successful."
There are also opinions suggesting caution regarding Hanla, which continues to issue corporate bonds. This is because its cash-generating capacity is weakening, and its dependence on borrowing funds is increasing. Hanla's net profit in the first quarter of this year is 3.374 billion won, which is less than a third of the 11.912 billion won in the first quarter a year ago. It has seen a decline of over 70% in net profit in a year. The dependency on net borrowing, which was 26.1% in 2020, has increased to 39.0% last year. As of the end of last year, this figure is nearly double that of mid-sized construction companies like KOLON GLOBAL (21.25%) and KCC E&C (21.65%).
Kwon Jun-seong, a researcher at NICE Investors Service, noted, "The dependency on net borrowing is somewhat higher compared to other construction companies with a credit rating of BBB+. However, it is assessed that the project finance projects are still operating well." Park Chan-bo, a senior researcher at Korea Ratings, analyzed in a report, "HL D&I Hanla has a high proportion of non-sale projects, and recently, the proportion of its own projects has been increasing. The business structure of the company means that the profitability of each project has a significant impact on cash flow, and uncertainties related to the profitability of the company's planned projects are increasing due to recent declines in the real estate market."
The largest business site among HL D&I Hanla's short-term receivables (accounts receivable for which payment has not been requested from the client) is the Siheung Bank 2 district apartment construction site. In the first quarter of this year, accounts receivable of 4.127625 billion won were recorded. This project is scheduled for completion in September. Other sites with large receivable amounts include Seosin-dong Gamnamu-gol redevelopment (1.139422 billion won), Yongin Geum-eo district apartment project (1.958476 billion won), and Pyeongtaek Dongbu Expressway (1.908994 billion won).