This article was published on Feb. 3, 2025, at 4:28 p.m. on the ChosunBiz MoneyMove site.
As domestic conglomerates are sequentially issuing corporate bonds at the beginning of the year, Lotte Group is showing a particularly passive stance towards bond issuance. Although it has offered the iconic Lotte World Tower as collateral to restore its credit rating, overall liquidity concerns triggered by LOTTE Chemical have not completely dissipated. The market sees the demand forecast for Hotel Lotte scheduled for next week as a barometer to gauge investor sentiment.
According to investment banking (IB) industry sources on the 3rd, Hotel Lotte plans to conduct a demand forecast for a total of 100 billion won in corporate bonds consisting of 2 to 3-year maturities on the 12th. The underwriters include NH Investment & Securities, KB Securities, Korea Investment & Securities, Shinhan Investment Corp., Samsung Securities, DAISHIN SECURITIES, and Kiwoom Securities. Depending on the outcome, they are considering increasing the issuance to up to 200 billion won, planning to issue the bonds on the 20th.
Investor attention towards this demand forecast stems from the changing status of Lotte Group, which was previously a 'big player' in the corporate bond market. Historically, Lotte Group has issued approximately 4 trillion won in public bonds annually, making it the third largest group in terms of fundraising after SK Group and LG Group. Typically, corporations issue new bonds to repay bonds that are maturing.
However, the atmosphere is cool this year. In the corporate bond market, among its affiliates, only LOTTE Wellfood and Hotel Lotte are scheduled to issue bonds totaling a maximum of 500 billion won in January and February. This is only half compared to 935 billion won in January last year. Considering that Lotte Group is facing the maturity of over 1 trillion won in corporate bonds this month, this is a small amount.
Analysts suggest that the poor performance of key affiliates like LOTTE Chemical and the retail sector is still holding back the entire group. Previously, LOTTE Chemical has faced a situation where 2 trillion won in corporate bonds fell into a state of expiration of benefits, triggering liquidity concerns across Lotte Group. Last month, after LOTTE Chemical adjusted its financial covenant, the immediate crisis was brought under control, but the conditions of declining cash generation and unfavorable business conditions remain largely unchanged.
An IB industry source noted that “the collateral card backed by the Lotte World Tower, which Lotte Group ambitiously presented, could substantiate its creditworthiness from an investor's perspective; however, conversely, it implies that its own credit is poor if there is insufficient collateral or guarantees, potentially leading to greater concerns.” They said, “While LOTTE Wellfood has excellent financial soundness and success was anticipated, there are doubts about the popularity of Hotel Lotte due to poor performance in the duty-free sector.”
Given the situation, Lotte Group is issuing commercial papers (CP) instead of corporate bonds to secure funding. CP typically carries a higher interest rate than corporate bonds, leading to greater cost burdens. However, CP has a simpler issuance process and, crucially, it does not bear the reputational risks associated with demand forecasts. This means it can avoid situations where it fails to secure enough investors in corporate bond demand forecasts or experiences unsold portions. In fact, last month, companies like LOTTE Chemical, LOTTE Corporation, Lotte Shopping, and LOTTE Construction issued 2 trillion won worth of CP.
The market indicates that Lotte Group is unlikely to revisit the public corporate bond market for the time being. A source in the bond industry stated, “Although the atmosphere may differ depending on the affiliate sectors, the funding market's view of Lotte Group remains conservative, suggesting that reliance on CP funding will likely increase this year.”