This article was published on the 19th at 4:47 p.m. on Signal, a capital markets service.
Lotte Engineering & Construction, returning to the public bond market after roughly a year, drew about 150 billion won in orders during its demand forecast. The company failed to sell any of its bonds last year amid a prolonged construction downturn, but improved profitability appears to have restored investor sentiment this year.
According to investment banking sources on the 19th, Lotte E&C received 151 billion won in valid orders for a 50 billion won sale, expandable to 100 billion won, in a public bond demand forecast held that day. When it sought 110 billion won in June last year, it received no purchase orders at all, but this year it secured more than triple its target. A tighter supply of corporate bonds, as the market shrank this year on interest rate uncertainty, is also seen as a contributing factor.
After failing to sell any bonds last year, Lotte E&C aggressively issued hybrid securities and asset-backed securities to shore up liquidity. Between late last year and early this year, the company issued a total of 700 billion won in hybrid securities to improve its financial structure, along with about 600 billion won in asset-backed securities. This is believed to have addressed funding needs arising from upfront construction spending and delays in collecting payments. As of the first half of this year, Lotte E&C's total borrowings had risen to 3.2318 trillion won, with net borrowings reaching 2.12 trillion won.
Profitability is showing signs of recovery. Lotte E&C posted operating profit of 172.8 billion won in the first half of this year, with an operating margin of 5.3%. Still, the burden of non-recurring losses, such as provisions related to real estate project financing (PF) and bad-debt allowances on loans, continues, according to Korea Ratings.
PF guarantees, meanwhile, shrank to 2.4 trillion won at the end of June this year from more than 6 trillion won at the end of 2022. But of the 2.1 trillion won in PF guarantees tied to contract projects, 1.7 trillion won involves sites where construction has not begun, leaving the burden intact, according to the analysis. Kim Sang-soo, a senior researcher at Korea Ratings, said the concentration of project completions in the second half of next year means borrowing and cash-flow pressures will likely persist for some time. Even so, he noted that "given Lotte Group's strong external credit standing and its capacity to provide support, the possibility of affiliate support in an emergency is recognized."
