Young Poong Paper has been experiencing losses for two consecutive years since acquiring Young Poong Package in 2023. As the repayment of short-term borrowings amounting to 10 billion won borrowed from Young Poong Paper approaches, Young Poong Paper has injected funds again by acquiring convertible bonds worth 8 billion won. Industry analysts point out that the parent company is bearing the burden of a subsidiary that has shown no improvement in performance.
According to the Financial Supervisory Service electronic disclosure system on the 3rd, Young Poong Package has consistently recorded losses since its acquisition by Young Poong Paper in May 2023. Young Poong Package reported revenues of 9.4 billion won and an operating loss of 1.7 billion won in 2023, and projected revenues of 10.7 billion won and an operating loss of 2.9 billion won in 2024.
As the subsidiary's poor performance continues, Young Poong Paper lent a total of 10 billion won in short-term funds to Young Poong Package. The repayment of short-term borrowings must occur within one year. As of December 2024, Young Poong Package, which borrowed 10 billion won from Young Poong Paper, must repay the amount by December 2025.
The problem is that Young Poong Package lacks the ability to repay the 10 billion won. As of the end of 2024, Young Poong Package's assets are valued at 18.1 billion won, with only 2.7 billion won in liquid assets that can be quickly converted to cash. The annual net cash increase is limited to 150 million won, and cash has flowed out rather than into operations and investment activities. It barely posted a profit due to the inflow of short-term borrowings, but its ability to repay is virtually nonexistent.
In this situation, Young Poong Paper announced that it is expected to acquire convertible bonds worth 8 billion won issued by Young Poong Package on the 20th. Convertible bonds are debt securities with the right to purchase new shares from the issuing company. By acquiring the convertible bonds issued by Young Poong Package, Young Poong Paper will effectively lend 8 billion won and receive the right to collect interest and new shares.
What needs to be noted here is how Young Poong Paper will acquire the convertible bonds. Young Poong Paper revealed that it will acquire the bonds by 'lending,' implying that it intends to replace the bond acquisition amount with the money lent to Young Poong Package. This effectively means extending the maturity by converting the loan into bonds.
Professor Kim Beom-jun of the accounting department at Catholic University said, 'From the parent company's perspective, it would have had to provide a loan since it cannot allow its subsidiary to fail. However, given the low collection possibility, it seems that they deemed refinancing through the bonds is a better approach than lending more money.'
A representative from Young Poong Paper stated, 'We are undertaking various processes to improve the financial structure of Young Poong Package, and this (bond acquisition) is part of that process.'
Earlier in May 2023, Young Poong Paper acquired the corrugated cardboard manufacturer Taehwa P&T (now Young Poong Package) for about 15 billion won. Taehwa P&T, established in 2006, is a mid-sized corrugated processing company that has supplied finished goods boxes to HiteJinro, Lotte Aluminum, and others.
By acquiring this company, Young Poong Paper has devised a strategy to expand its market dominance through 'vertical integration' from raw paper production to corrugated processing. However, performance has continually fallen short of expectations, leading to ongoing losses since the acquisition.
Young Poong Paper's performance, with Young Poong Package as a consolidated subsidiary, is also on a downward trend. In 2023, Young Poong Paper recorded sales of 82.5 billion won, a 21.6% decrease from the previous year, and turned to an operating loss of 2.9 billion won. In 2024, while sales slightly increased to 88.1 billion won, the operating loss expanded to 13.8 billion won.