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Construction

HDC Hyundai eyes over $800 mn in loans after fatal accident

Despite a spike in its bond yields, the developer fails to attract bond traders, while it sees no liquidity risk

By Jan 27, 2022 (Gmt+09:00)

3 Min read

Part of a 39-story apartment building under construction in Gwangju crumbled on Jan. 11, for which HDB Hyundai Development is the main contractor
Part of a 39-story apartment building under construction in Gwangju crumbled on Jan. 11, for which HDB Hyundai Development is the main contractor

South Korea's HDC Hyundai Development Co. plans to raise more than 1 trillion won ($832 million) in funding backed by its real estate holdings as the builder is trying to ease market concerns about its short-term liquidity, according to people with knowledge of the matter on Wednesday.

HDC, better known for its apartment brand Hyundai IPARK, came under fire over a deadly accident on Jan. 11 at its construction site in Gwangju, South Jeolla Province, where part of the facade of a 39-story apartment building crumbled to the ground. It left one worker dead and five others missing. 

The fatal accident pulled its bond yields sharply higher and increased its refinancing risk for the outstanding debt of 2.8 trillion won the builder raised through asset-backed securities (ABS).

On Jan, 25, HDC Hyundai presided over an informal meeting with officials of banks and other financial services companies in the country. 

During the meeting, the real estate developer revealed a plan to put up its property holdings, including its 15-story office building IPARK Tower in Seoul, as collateral for new borrowings and asked for their cooperation, said one of the attendants of the meeting.

"Applying a 50% loan-to-value ratio to the collateral of the IPARK office building in Samseong-dong and pots of land where it has not broken ground, it may be able to borrow at least 1 trillion won in cash," he told The Korea Economic Daily's capital market news outlet Market Insight.

"In order to dispel market concerns about its financial conditions, HDC is planning to announce such measures to boost liquidity."

IPARK Tower, likely to be offered as collateral, was built on the land of 2,648.8 square meters in 2004 and is located in the upscale district of Gangnam, southern Seoul. Its floor area measures 1,318.56 square meters 

HDC Hyundai eyes over 0 mn in loans after fatal accident 

Some bond traders started shunning the company's paper, pricing in its possible refinancing failures and a business suspension it might face on the back of the fatal accident. 

"Before the accident, its three-month ABS sold at the low end of the 2% range," said a commercial paper trader. "Now nobody pays attention to it, despite being offered at 4.5% a year."

HDC Hyundai, spun off from Hyundai Group in 1999, holds cash and cash equivalents of 1.9 trillion won as of end-2021.

Now market eyes are on whether it will be able to refinance 2.8 trillion won worth of ABS issues.

POSSIBLE DOWNGRADE

NICE Information Service, a local rating agency, on Jan. 24 placed HDC Hyundai and HDC Holdings Co. on the watch list for a possible downgrade from their current rating of single A plus. 

Its share price has plunged 42% year-to-date, as the company is under police investigations about alleged safety regulation violations and other lax practices.

In June of last year, HDC Hyundai was under attack over the collapse of a building during demolition in the same city of Gwangju. The five-story building fell on a city bus, killing nine bus passengers and seriously injuring eight others. 

To take responsibility for the string of accidents, Chairman Chung Mong-gyu offered to step down last week.

But a corporate finance executive of a Korean brokerage company dismissed market concerns about HDC Hyundai's financial conditions as overdone.

"HDC Hyundai does not need to pay off all the 1.5 trillion won of ABS coming due in the first quarter of this year," he said. "A large number of brokerage companies already agreed on their refinancing."

Additionally, a business suspension it might face will unlikely trigger liquidity problems even in the worst-case scenario. He explained that an administrative action to be taken by the Seoul Metropolitan Government to suspend HDC Hyundai's business would not be effective until a court ruling, if the company takes the issue to court.

An HDC Hyundai official said the company will increase short-term funding through various measures to avoid a liquidity crunch, adding that most of the outstanding balance of its ABS issues will be later booked as revenue as its construction projects proceed.

Write to Tae-Ho Lee at thlee@hankyung.com
Yeonhee Kim edited this article.
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