Polaris Shipping Adds Mandatory Redemption Covenant to Private Placement Bonds; Interest Rate Rises to 5.9% [fn Market Watch]

[Financial News] Polaris Shipping raised funds in the private placement bond market with a mandatory redemption covenant requiring it to repay the principal early if its credit rating falls. As borrowing is expected to increase due to new vessel investments, the interest rate on its privately placed bonds also rose by about 40 basis points (1 bp = 0.01 percentage point) in six months.
According to financial investment industry sources on the 4th, Polaris Shipping issued privately placed bonds worth 30 billion won with a one-year maturity on the 3rd. The proceeds will be used for operating expenses.
The bonds carry a covenant requiring mandatory repayment of the principal if Polaris Shipping’s credit rating falls below a certain level. The market typically uses a structure in which an early redemption obligation arises when the predetermined credit rating falls by two to three or more notches.
Polaris Shipping’s current credit rating for unsecured bonds is BBB, with a stable outlook, according to NICE Investors Service. Its short-term credit rating is A3.
The issuance rate has also increased. The coupon rate on the latest private placement bonds is approximately 5.9% per year. Given that the interest rate on the one-year private placement bonds issued in March was about 5.5% per year, the funding rate has risen by approximately 40 basis points in six months.
Credit rating agencies recognize Polaris Shipping’s stable business base while identifying the increased debt burden resulting from new vessel investments as a key factor to monitor.
Shin Seok-ho, a senior researcher at NICE Investors Service, said, "Polaris Shipping has a stable business structure based on long-term contracts with high-quality shippers, including Vale, POSCO, and Korea Electric Power Corporation (KEPCO)." He added, "The company is expected to maintain solid earnings generation based on long-term transportation contracts and a cost-reimbursable freight structure."
However, the planned investment of approximately 800 billion won in new vessels is a burden. Polaris Shipping is pursuing new investments in six bulk carriers from 2026 to 2031. The vessels are scheduled to operate under long-term transportation contracts with Vale, but the company’s debt burden is expected to increase, mainly through ship financing and lease liabilities. NICE Investors Service said it would be necessary to continue monitoring the final financing terms and the repayment plan for principal and interest.
[email protected] Kim Hyun-jung Reporter