As a result of KCC's revaluation of its real estate assets, including its headquarters in Seocho-dong, Seoul, a revaluation difference of 1.5 trillion won was generated after 16 years. KCC, which has faced financial burdens since acquiring the silicone material subsidiary Momentive, is expected to improve its financial structure through capital expansion resulting from this asset revaluation.
According to KCC on the 13th, the company conducted a revaluation of land and investment real estate, including its headquarters in Seocho-dong, resulting in a total evaluation difference amounting to 1.5087 trillion won. This amount corresponds to 10% of the total asset value (15.0661 trillion won).
In the case of land, the existing book value was 1.1068 trillion won, but the revaluation amount was assessed at 2.3156 trillion won, leading to a revaluation difference of 1.2087 trillion won. Investment real estate saw a book value of 847.9 billion won increase to an asset evaluation amount of 1.1478 trillion won, resulting in a revaluation difference of 299.9 billion won.
This asset revaluation is the first since 2009. In 2009, KCC conducted a revaluation of land, which resulted in a revaluation difference of 950.1 billion won.
The reason KCC initiated this asset revaluation is the increased financial burden following the acquisition of the silicone material company Momentive in 2019. KCC acquired Momentive for $3 billion (approximately 3.6 trillion won), financing about half of the acquisition cost through borrowing. Consequently, KCC's total borrowing, which was in the 2 trillion won range before the Momentive acquisition, rose to 5.3 trillion won (net borrowing of 4.3 trillion won) by the end of last year.
As a result, the dependence on borrowing (the ratio of borrowing to total assets) also rose from 36% in 2020 to 40.7% by the end of last year. This indicates that the company operates 40% of its assets through liabilities. Generally, a borrowing dependence of below 30% is considered stable. An increase in borrowing dependence may lead to vulnerability to rising interest rates or economic downturns, which can deteriorate financial stability. KCC's liability ratio was 160.1% at the end of last year, up nearly 25 percentage points from 135.4% at the end of 2020. A stable liability ratio is considered to be below 100%.
KCC is expected to improve its borrowing dependence and liability ratio as a result of this asset revaluation. Through this asset revaluation, KCC's assets and capital will increase by 1.1616 trillion won. Of this capital, the revaluation surplus will rise by 907.4 billion won, retained earnings will increase by 208.1 billion won, and other comprehensive income will each rise by 46 billion won. An increase in revaluation surplus will increase the scale of capital, alleviating concerns about capital erosion, and enhancing the company's asset value. A rise in retained earnings will also enhance the equity ratio, lowering the liability ratio.
Nice Credit Rating Agency noted regarding KCC's asset revaluation that 'the indicators for financial structure are expected to improve, such as the increase in the revaluation of tangible assets and the reflection of revaluation surplus.'
In addition to the asset revaluation, KCC is expanding its activities aimed at improving its financial structure. Currently, KCC is considering various liquidity securing measures, including the issuance of exchangeable bonds.
A KCC official said, 'The financial soundness has improved through the asset revaluation' and 'We plan to continue efforts for substantial financial structure improvement through managing operating costs, cost reductions, and securing liquidity.'