| People walk in front of the box office of a movie theater operated by CJ CGV. Korea Times file |
By Lee Kyung-min
Local movie theater chain operators are resorting to liquidity crunch-induced issuance of short-term bonds, in what market watchers say is a risky operation of corporate financials brought on by a steady increase in borrowing that failed to offset a nosedive in ticket sales during the pandemic years.
CJ CGV and Lotte Cultureworks, the entertainment and movie chain affiliates of CJ Group and Lotte Group are issuing hybrid bonds or perpetual bonds. Megabox Joongang, the country's largest multiplex cinema chain, is issuing short-term commercial papers as well as callable and puttable bonds.
The back-to-back issuances of bonds by the three theater chains are to pay off previous debt nearing a maturity or a rollover.
Hybrid bonds are subordinated bonds issued by non-financial entities. The yields of hybrid bonds are significantly higher than those of senior bonds from the same issuer. They are hybrid because they combine the characteristics of bonds ― payment of a coupon ― and equities that have no maturity date or a very long maturity. Rating agencies regard hybrids as half-debt and half-capital, which tends to improve the issuer's credit figures.
Callable bonds permit the issuer to redeem the debts earlier than their original maturity date. Puttable bonds are the opposite of callable bonds, whereby the issuer has the right but not the obligation to purchase the bonds back from investors prior to their maturity date.
According to the investment banking industry, Lotte Cultureworks issued 30 billion won worth of private hybrid bonds, June 29, with Samsung Securities as the underwriter.
This followed the issuance of another 40 billion won ($30 million) worth of private hybrid bonds in April with Korea Investment & Securities as the underwriter.
The 70 billion won was used to repay maturing debt, market watchers say. Lotte Cultureworks' debt-to-equity ratio stands at 3,500 percent, according to market watchers.
Similarly, CJ CGV issued 400 billion won in convertible bonds last July. The debt maturing in 30 years was largely considered to be perpetual bonds.
But the 400 billion won was not enough to pay off more than 2 trillion won CJ CGV borrowed over the past three years.
CJ CGV is looking for a breakthrough in debt management with about 1 trillion won promised by CJ Group. It will include equity financing of 570 billion won and the purchase of of 450 billion worth of shares in CJ Olive Networks, an entertainment affiliate of CJ Group.
But shareholders say the plan is an irresponsible and easy way to solve the problem at their expense, since 380 billion won, or 66 percent of the 570 billion won, will be used to pay off debt without the burden of interest payments.
Megabox issued 110 billion won in commercial paper, up from 34.5 billion won last September. It secured 52.5 billion won in June after issuing callable and puttable bonds with six-month maturities. Its debt-to-equity ratio reached 1,380 percent.
"Poor earnings performance during the pandemic years led to a liquidity crunch," a CJ official said. "Ticket sales have yet to see a meaningful turnaround and an overall rise in fixed costs added to the years of COVID woes," the official added. Lotte was unavaillabe for comment.