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Capital raising

Korea Inc. rush to sell property, new shares to fund new business

Listed companies sell $4.1 bn worth of property in H1, stock issues to hit record high in 2021

By Jul 16, 2021 (Gmt+09:00)


Lotte Shopping recently sold a stake in the tallest skyscraper in South Korea, Lotte World Tower (pictured), as well as a stake in Lotte World Mall to Lotte Property & Development to raise 830 billion won.
Lotte Shopping recently sold a stake in the tallest skyscraper in South Korea, Lotte World Tower (pictured), as well as a stake in Lotte World Mall to Lotte Property & Development to raise 830 billion won.

South Korea’s major companies are rushing to secure cash to fund new business. Some have sold or securitized property, while others issued new shares to raise billions of dollars, taking advantage of booming local stock markets.

Property sales reported to the stock exchange by listed companies jumped 64.7% to 4.7 trillion won ($4.1 billion) in the first half from a year earlier, according to Market Insight, the capital news outlet of The Korea Economic Daily.

SK Group, Lotte Group and Shinsegae Group led such asset securitization. Shinsegae, which bought Ebay Korea earlier this year, accelerated its asset-light strategy by leveraging real estate to fund its growing e-commerce business. The retail giant securitized property of its supermarket chain E-Mart Inc. through a sale and leaseback, having raised 1.3 trillion won since 2019. It is considering securitization of 1 trillion won worth of E-Mart’s headquarters building.

SK Group set up a real estate investment trust (REIT) company for environmental, social and governance (ESG) management. The group securitized some 2 trillion won worth of property including its headquarters building in Seoul and 115 gas stations of SK Energy to the REIT unit. SK Group plans to use the proceeds to invest in eco-friendly energy platforms such as electric vehicle (EV) charging stations. Lotte Shopping Co., which is reinforcing online shopping platforms, secured 830 billion won by selling stakes in Lotte World Tower, the country’s tallest skyscraper, and Lotte World Mall to Lotte Property & Development.

“Investors prefer asset securitization in a group since group affiliates pay rent in a stable way, while renting responsibly. A group can raise funds and improve efficiency in managing combined property,” said a brokerage industry source.

Some companies sold their offices to improve their financial structure. Lotte Insurance Co. sold its headquarters building for 224 billion won to raise its risk-based capital (RBC) ratio. Hanatour Service Inc. raised 189 billion won by selling its headquarters building and a hotel. Samick Musical Instruments, Sindoh and S&T Dynamics made similar moves.

Stock markets were a favorite source for raising funds. The value of domestic companies’ new share sales stood at 12.7 trillion won in the first half with 9.5 trillion won in rights offerings and 3.2 trillion won in initial public offerings, already exceeding last year’s 10.9 trillion won. Fundraising in stock markets is expected to hit a record high this year.

Korean Air Lines Co. raised 3.3 trillion won from a new share sale as planned, in the largest-ever rights offering by a domestic company, to fund its acquisition of local rival Asiana Airlines Inc. Hanwha Solutions Corp. raised 1.3 billion won for renewable energy business through its rights offering, while Hanwha Systems Co. secured 1.2 trillion won for new business. POSCO Chemical Co. raised 1.3 trillion to expand its capacity.

Write to A-Young Yoon and Jin-Seong Kim at youngmoney@hankyung.com

Jongwoo Cheon edited this article.

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