Lotte Group affiliates are dubbed as big issuers in the corporate bond market. Out of them, five affiliates including Hotel Lotte are assigned with a credit rating of AA+ representing very high quality. The number of blue-chip affiliates with credit ratings of more than AA- reaches eleven. Lotte affiliates issued corporate bonds worth 4.78 trillion won in 2014 and 4.751 trillion won in 2015 due to their high credit ratings. Amid a shortage of blue chips caused by a polarized corporate bond market, Lotte’s corporate bonds were much sought after.
But things have been entirely changed as the prosecution launched an investigation into slush funds of Lotte Group early this year. After Hotel Lotte indefinitely postponed the IPO (Initial Public Offering) on June 13, a crucial element that could improve the governance structure, its corporate bonds plummeted. For two months after the derailment of the IPO, Lotte Group affiliates, except for financial ones, have been blocked from issuing corporate bonds regardless of whether a bond offering is public or private. When companies issue corporate bonds, they have to write down the prosecution’s investigation records as important management information, but in fact it is hard for the accused to do so. Here lies the reason Hotel Lotte had no choice but to delay the IPO through which it plans to raise 5 trillion won (US$4.34 million).
Accordingly, the cash-strapped group has turned its direction toward commercial paper (CP) for fund raising. The amount of CP issued by the non-financial affiliates of Lotte Group for two months from June 13 to last week are said to reach 2.3305 trillion won (US$2.026 billion). In the case of issuing CP with a one-year maturity in contrast to company stock of public offerings, the issuing company does not have to submit the registration statement to the Financial Supervisory Service.
There are worries that a shorter-term of borrowing could be a burden to the financial structure. As not a few of the Lotte affiliates have issued three-month CP, the group could be vulnerable to unexpected shocks from the outside. Lotte Shopping issued commercial paper worth 200 billion won (US$173 million) in June, followed by Lotte Shopping (250 billion won or US$217 million)), Lotte Data Communication Company (30 billion won or US$26 million), Lotte Chilsung (20 billion won or US$17 million), and Lotte Aluminium (30 billion won or US$26 million) in July, and Lotte Aluminium (15 billion won or US$13 million) in August. Among these, Lotte Aluminium issued one-month CP worth 18.5 billion (US$16 million) in July to raise emergency funds. The company, as it were, pays the maturity amount with money raised by short-term CP.