Lotte Engineering has successfully raised 300 billion won through cash flow from its nearly completed projects. The company has significantly reduced borrowing costs through collaboration with commercial banks, demonstrating its credibility in the capital markets and accelerating its financial restructuring efforts.
According to industry sources on May 11, Lotte Engineering recently issued asset-backed securities (ABS) based on construction receivables from projects nearing completion. The ABS consists of two tranches, each worth 150 billion won, with maturities of one year and one year and three months, totaling 300 billion won. Hana Securities and Shin Young Securities acted as joint lead managers, while Samsung Securities and NH Investment & Securities participated as underwriters.
The ABS was issued with the highest rating of 'AAA', three notches above Lotte Engineering's own credit rating of A0. This rating reflects the stable cash flow from completed projects, combined with a 150 billion won credit facility from Hana Bank and Lotte Engineering's deposit management, maximizing structural stability.
As a result, Lotte Engineering secured funds at significantly lower rates compared to typical corporate bonds or commercial paper (CP). The company plans to use this successful issuance as a stepping stone to diversify its funding sources through similar ABS issuances in the future.
Lotte Engineering's proactive funding strategy is attributed to the unique 'funding lag' characteristic of the construction industry. Currently, the company has 20 housing projects scheduled for completion next year, with expected receivables amounting to approximately 2.6 trillion won.
Typically, construction companies face concentrated expenditures just before project completion, but significant cash flow is only recovered after the final payments are received post-completion. Since the beginning of the year, Lotte Engineering has been designing a sophisticated securitization structure in collaboration with financial institutions to address this temporary funding demand.
The risk of contingent liabilities from project financing (PF) is also showing a clear downward trend. Contingent liabilities, which reached 6.8 trillion won at the end of 2022, have decreased to around 3.1 trillion won in 2025, with a target to reduce them to the low 2 trillion won range this year. Notably, the establishment of a fund for purchasing PF asset-backed securities has helped extend the borrowing structure, alleviating short-term repayment pressures.
Financial health indicators are also showing significant improvement. The debt ratio, which was 265% in 2022, has been declining annually and is expected to fall to around 187% by 2025, while reliance on borrowings has also decreased to the 20% range.
Lotte Engineering stated, "The successful issuance of AAA-rated ABS is a significant turning point that acknowledges the company's creditworthiness in the market. We aim to achieve a substantial turnaround in our operational performance this year through thorough cash flow management and financial restructuring."
The company also plans to accelerate its management normalization based on stable funding. A Lotte Engineering official emphasized, "Successfully completing the issuance of AAA-rated ABS has once again proven the safety of our funding. Under the strengthened financial health framework, we will further enhance the speed of management normalization through profitability-focused business management this year."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.