SK D&D Hits Lower Limit, Sets 52-Week Low on Massive Rights Offering

SK D&D fell to its lower limit. With both the KOSPI and KOSDAQ triggering circuit breakers together for a second consecutive trading day for the first time ever, the disclosure of a massive rights offering quickly cooled investor sentiment, analysts said.

According to the Korea Exchange on the 30th, SK D&D closed the previous session down 29.96% at 3,880 won. The stock hit its lower limit and simultaneously set a new 52-week low.

Behind SK D&D's sharp decline was a large-scale rights offering. On the 28th of this month, after the regular session closed, SK D&D disclosed that it had decided on a 136.7 billion won (136,723.86 million won) rights offering allocated to existing shareholders. The purpose of the fundraising is debt repayment, among other things. Through this rights offering, the company plans to issue 44.681 million new common shares at 3,060 won per share.

The prevailing view in the industry is that this rights offering is less about raising funds for new business investment and more about responding to imminent debt maturities and contingent liabilities related to real estate project financing (PF). In particular, the entire 169 billion won in private bonds issued by SK D&D matures in the second half of this year, and self-refinancing is not easy amid weakened investor sentiment toward BBB-grade corporate bonds.

If the capital increase is completed as planned, the short-term financial burden is expected to ease somewhat. Korea Ratings issued a report the previous day, estimating that if the effects of the capital increase were simply reflected in the separate-basis financial statements as of the end of March this year, SK D&D's debt ratio would fall from 149.2% to 120.0% and net borrowings would decrease from 603.9 billion won to 468.2 billion won. Hahn & Company Development Holdings, the largest shareholder, plans to subscribe to new shares equivalent to 78.7% of the total, on the premise of acquiring the stake held by SK Discovery.

However, the assessment is that the capital increase alone does not resolve risks related to real estate development projects. As of the 27th of this month, SK D&D provides joint and several guarantees on 210.5 billion won in interim payment loans for buyers of the Gunpo Triarts project, and the potential subrogation amount, taking into account the company's 50% share, is 105.3 billion won. Separately, the company also bears obligations for fund replenishment and conditional debt assumption on the Gunpo Triarts main project financing (PF) loan and the Icheon Baeksa logistics center, among others.

Restoring the cash-generating capacity of its core business is also key. In the first quarter of this year, SK D&D recorded an operating loss of 9.3 billion won on a consolidated basis due to sales reversals from the cancellation of Guro Thinkfactory sales contracts and fixed-cost burdens. Sun Ji-hoon, senior analyst at Korea Ratings, said, "If the capital increase is completed, additional downward pressure on the credit rating may ease in the short term, but considering the real estate downturn and delays in recovering development profits, it will be difficult for profitability and cash-generating capacity to improve quickly." SK D&D's unsecured bond credit rating currently stands at "BBB- (negative)."