South Korea: Hite Jinro’s bonds see oversubscriptions despite prospects of weak earnings

Hite Jinro, a listed beer and soju maker, saw oversubscriptions of its bonds issued earlier this month, despite prospects of weaker-than-expected earnings and financial difficulties on high debt, The Korea Herald reported on April 18.

Demand for Hite Jinro’s A-graded bonds exceeded 100 billion won ($87 million) the company had initially sought to raise to finance its operations and repay its debt.

Its bonds have been oversubscribed by 25 billion won, with institutional investors such as Dongbu Securities, NH Investment & Securities and Shinhan Investment increasing their acquisitions of Hite Jinro bonds during the book building process, according to a regulatory filing.

NH Investment and Shinhan Investment were Hite Jinro’s bond underwriters. Other investors included KTB Investment & Securities, Korea Investment & Securities and Daishin Securities.

Of the 125 billion won it raised through the three-year bonds with an annual yield of 2.6 percent, Hite Jinro said that it will use 50 billion won for debt refinancing and 75 billion won for operations.

Facing high debt, Hite Jinro and its parent holdings company have been liquidating their equities, real estates and subsidiaries to secure cash.

Hite Jinro is currently seeking to sell real estates in Seoul worth about 140 billion won, while Hite Jinro Holdings is currently in negotiations to sell its wholly-owned subsidiary Hite Jinro Ethanol, a soju raw materials maker, to Changhae Ethanol, a bio-ethanol producer listed on the tech-heavy KOSDAQ. Changhae and Hite Jinro Holdings agreed to pursue takeover talks in February. Also, Hite Jinro Holdings sold 3 million of its shares, or a 4.2 percent stake, in Hite Jinro.

Hite Jinro Holdings has over 1.9 trillion won in current liabilities, well above its current assets of 881 billion won at the end of last year, according to its financial statements.

Hite Jinro’s operating profit in the first quarter of this year is expected to fall short of market consensus at 34 billion won.

However, as one of Korea’s leading liquor makers alongside AB InBev’s Oriental Brewery, analysts forecast that Hite Jinro will improve its finances on increased soju prices.

“With (inventory) costs stabilizing, Hite Jinro is expected to improve in the second quarter,” said Cha Jae-heon, an analyst at Dongbu Securities.

19 April, 2016