AJ Networks issues a string of private bonds with ‘mandatory repayment’ clauses...Repayment burden if credit rating falls [fn Market Watch]

[Financial News] AJ Networks, a KOSPI-listed company, has successively issued privately placed corporate bonds with mandatory repayment clauses that take effect if its credit rating is downgraded. The issuances are drawing attention as the company’s corporate bond issuance this year approaches KRW 200 billion, while a deterioration in its creditworthiness could also create repayment obligations before maturity.
According to investment banking (IB) industry sources on the 21st, AJ Networks issued KRW 10 billion worth of its 104th privately placed corporate bond on the 16th. The bond matures on December 16, 2027, has a term of one year and two months, and carries an annual coupon rate of 5.1%.
The private bond includes a special provision requiring mandatory repayment if the company’s corporate bond credit rating falls two notches from its current BBB+ to BBB-. BBB- is the lowest investment-grade rating, so the structure could impose an early repayment burden even before the rating falls to speculative grade.
Earlier, on the 21st of last month, AJ Networks also issued KRW 20.5 billion worth of its 103rd private-placement bond at an annual rate of 5.55%. It matures on July 21, 2028, and also carries a mandatory repayment clause. The two issues of private bonds with mandatory repayment clauses total KRW 30.5 billion.
The cost of borrowing has also risen. The rate on a two-year private-placement bond issued in June was 4.8% per year, but the rate on a KRW 20 billion, two-year bond issued on the 17th of last month was 5.4%—60 basis points (1 bp = 0.01 percentage points) higher.
AJ Networks has issued corporate bonds worth KRW 198.5 billion from the start of this year through the 16th of this month. As of the 21st, KRW 408.5 billion in corporate bonds remained outstanding. In particular, maturities totaling KRW 35 billion are scheduled: KRW 10 billion on the 23rd and KRW 25 billion on the 6th of next month.
Its debt burden is also substantial. According to Korea Investors Service, as of the end of June this year, AJ Networks had total borrowings of KRW 1.1308 trillion and net borrowings of KRW 1.0541 trillion on a non-consolidated basis. Short-term borrowings stood at KRW 634.7 billion, while cash and cash equivalents totaled just KRW 76.7 billion, about 12.1% of short-term borrowings.
Korea Investors Service, however, rates AJ Networks BBB+ with a ‘stable’ outlook. The cash-generating capacity of its rental business and reduced financial risks related to its subsidiaries are among the factors supporting its creditworthiness.
[email protected] Kim Hyun-jung Reporter