Hyosung Chemical still in an 'interest trap' after repaying 1.1 trillion won in debt...Perpetual bonds at 11.8%, short-term paper at 6.7% [fn Market Watch]

[Financial News] Hyosung Chemical has been unable to escape the high-cost funding trap despite repaying more than 1 trillion won in debt. After it did not exercise the call option on 200 billion won in hybrid securities, the interest rate surged to 11.8% per annum; it has also issued six-month short-term corporate bonds at 6.7% per annum. Although the company has moved to improve its financial structure through asset sales and support from its holding company, it faces the added pressure of refinancing short-term bonds on top of its heavy interest burden.
According to sources in the financial investment industry on the 6th, Hyosung Chemical issued 10 billion won in private placement corporate bonds the previous day at 6.7% per annum. They mature on May 5, 2027, making them six-month bonds. The company also raised 8 billion won at 6.75% on the 30th of last month. Including the 50 billion won issued on September 30, it has raised a total of 68 billion won through its three most recent private bond offerings. All mature in around six months, but their interest rates are close to 7% per annum.
What stands out is that high funding costs have persisted even after the repayment of substantial borrowings.
According to Korea Investors Service, Hyosung Chemical made net repayments of 1.1192 trillion won in borrowings last year using funds raised from selling its specialty gas business and the Onsan tank terminal, among other assets. Nevertheless, its consolidated total borrowings stood at 1.6069 trillion won as of the end of March. Short-term borrowings in particular totaled 1.2812 trillion won, accounting for 79.7% of the total.
Interest payments on existing hybrid securities also surged. Hyosung Chemical did not exercise call options this year on hybrid securities worth 100 billion won each, issued in February and September 2024. As a result, the interest rate jumped 3.5 percentage points, from 8.3% to 11.8% per annum. Annual interest payments on the two bonds rose by 7 billion won, from 16.6 billion won to 23.6 billion won. In effect, the company postponed immediate repayment of principal but took on the full burden of higher interest rates.
Hyosung Chemical has 400 billion won in outstanding hybrid securities. Including 100 billion won in hybrid subordinated convertible bonds (CBs) fully acquired by its holding company, Hyosung, in December last year, its hybrid-capital debt totals 500 billion won. Outstanding bond issuance, including ordinary corporate bonds, stands at 588 billion won. Applying current coupon rates, its annual interest burden is calculated at approximately 44.3 billion won on a simple annualized basis. This figure excludes interest expenses on borrowings from financial institutions and other sources.
The refinancing burden also continues. Hyosung Chemical faces maturities on a total of 88 billion won in corporate bonds next year, starting with 20 billion won in March, followed by 58 billion won in April and 10 billion won in May. All 68 billion won in private placement bonds recently raised at rates in the upper 6% range per annum will mature in April and May next year. This means the company will have to repay or refinance short-term funds raised at high rates in just around six months.
A price return swap (PRS) contract backed by shares in its Vietnam subsidiary is also a burden. Hyosung Chemical sold a 49% stake in Hyosung Vina Chemicals last year and entered into a PRS contract worth about 379.9 billion won. If the value of the underlying asset falls below the reference price at settlement in June 2028, the company must pay the difference. Thus, despite the accounting reduction in borrowings, the risk of potential cash outflows remains.
Hyosung Chemical posted consolidated operating profit of 171.1 billion won in the first half of this year, but swung back to a loss, posting an operating loss of 19.5 billion won in the third quarter. Having sold assets to reduce its debt burden, the company is now seeing the profitability of its core business falter as well.
Kim Ho-seop, a research fellow at Korea Investors Service, analyzed, “Taking into account the debt-like nature of hybrid securities and the PRS contract involving the Vietnam subsidiary, Hyosung Chemical’s actual financial burden is higher than its financial indicators suggest.” He went on to assess, “It is expected to take time to ease the debt burden through cash generated from operations.”


[email protected] Kim Hyeon-jeong Reporter