Woongjin Faces Growing Financial Burden for Coway Takeover

Credit rating agencies are rushing to cut creditworthiness of Woongjin Group as the second-tier family-controlled conglomerate grapples with an increasing financial burden for acquiring Coway, Korea's largest home appliance rental service provider.

According to the Korea Investors Service, Monday, it recently downgraded Woongjin Company's rating to BBB from BBB+ and placed the Woongjin Group holding firm under observation.

"After Woongjin Company raised funds for its acquisition of a controlling stake in Coway, the company's total loan grew to 344 billion won ($303.2 million) in February, up from 73 billion won at the end of 2017," Korea Investors Service analyst Jeong Ik-su said.

When it finishes acquiring Coway, the company's volatility in the rental business may be weakened but it seems difficult for the company to improve its financial structure on its own, given its expanded financial burden and limited cash flow.

To cope with a liquidity shortage after its expansion drive foundered, Woongjin sold its 30.9 percent stake in Coway to MBK Partners for 1.2 trillion won ($1.05 billion) in January 2013.

In October last year, Woongjin Group announced that a consortium led by its education service unit, Woongjin Thinkbig, would buy a 22.17 percent stake in Coway from MBK Partners for 1.68 trillion won.

For the acquisition, Woongjin and other investors raised 2 trillion won of funds to acquire an additional 5 percent stake in Coway from the market. For that, Woongjin will pay 400 billion won, another consortium member STIC Investment will invest 500 billion won and Korea Investment and Securities will invest 1.1 trillion won.

Though Woongjin seems to be paying a significant portion, more than 80 percent of the funds being used for the acquisition comprises loans, because Woongjin's cash reserves were valued at 74.5 billion won at the end of September. Woongjin's debt to investors amounts to 1.85 trillion won.


To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT