NICE Investors Service: "Financial Sector's Credit Exposure to 5 JoongAng Group Affiliates Reaches Around 800 Billion Won"

An analysis by a credit rating agency shows that the financial sector's credit exposure to five JoongAng Group affiliates that have filed for corporate rehabilitation proceedings is estimated to be around 800 billion won.

In a report released today (June 16), NICE Investors Service stated, "On June 12, JTBC defaulted after failing to repay a total of 20.6 billion won in debt. On June 14, four affiliates—JoongAng Holdings, JoongAng P&I, Megabox JoongAng, and Contentree JoongAng—filed for corporate rehabilitation proceedings, and on June 15, JTBC also filed for rehabilitation."

Credit exposure refers to the scale of credit provided by financial institutions, such as banks, to a specific counterparty (borrower) through loans or other financial instruments.

The financial sector's credit exposure to eight major affiliates, including the five undergoing rehabilitation proceedings as well as JoongAng Ilbo, SLL JoongAng, and JoongAng Ilbo M&P, was found to be approximately 1.3 trillion won.

By type of financial institution, the banking sector accounted for the largest share at 832.9 billion won, followed by specialized financial institutions at 164.2 billion won, the securities industry at 125.1 billion won, and specialized credit finance companies at 79.7 billion won.

Among individual financial companies, Hanyang Securities had the largest exposure relative to its total assets and capital.

Hanyang Securities' actual book exposure related to JoongAng Group affiliates stood at approximately 84 billion won.

As of the end of last March, Hanyang Securities' equity capital stood at 647.8 billion won.

By company, the exposure consisted of 54 billion won for JTBC and 30 billion won for JoongAng Ilbo.

Of this, the exposure related to JTBC comprised 18 billion won associated with 'HY Athens Second,' a special purpose company (SPC), and 36 billion won in commercial paper.

NICE Investors Service projected, "As the primary debtor, JTBC, has applied for corporate rehabilitation proceedings, a decline in asset quality and an increased burden of setting aside provisions regarding the JTBC debt (54 billion won) are expected in the future." It added, "The scale of recognized losses will be determined by the maturity dates of specific tranches, the progress of the rehabilitation proceedings, and the recoverability of the debt."

However, the rating agency noted, "It has been confirmed that collateral has been secured for Hanyang Securities' related exposure," adding, "The collateral assets are managed under a trust structure, and consent for collateral transfer has also been secured from the main counterparty."

It further pointed out, "The existence of these collateral assets supports the recoverability of the receivables related to JTBC and JoongAng Ilbo, and is evaluated as a factor that partially mitigates the negative impact of the related exposure on Hanyang Securities' credit rating."

NICE Investors Service stated, "Regarding Hanyang Securities' credit rating, we plan to focus on monitoring the cash-generating capacity of the collateral assets and the recovery level of the related receivables."

Another credit rating agency, Korea Ratings, judged that due to prolonged sluggish performance accumulated since 2020, the total borrowings of JoongAng Group's major affiliates reached 3 trillion won at the end of last year, making it difficult to improve their financial structure through self-rescue measures alone.

In its report, Korea Ratings analyzed, "While broadcast advertising revenue—the core profit base for media affiliates such as JoongAng Ilbo and JTBC—showed a structural decline, Megabox JoongAng struggled to improve profitability due to the slump in the movie theater industry following the COVID-19 pandemic and shifts in content consumption patterns toward over-the-top (OTT) services. SLL JoongAng also faced difficulties due to rising content production costs and poor performance of its overseas subsidiaries."

Consequently, borrowing burdens steadily accumulated due to free cash flow deficits. In particular, the level of financial risk linkage within the group rose rapidly as they responded to funding shortages not only through direct short-term financial support among affiliates but also by issuing asset-backed securities based on credit offerings.

Korea Ratings pointed out, "The simultaneous filings for corporate rehabilitation proceedings by these affiliates prove that the financial burden across the group has exceeded manageable levels, leading to a significant deterioration in funding conditions and liquidity response capabilities."

It added, "Even for affiliates that have not filed for corporate rehabilitation, it is difficult to rule out the possibility of additional credit events, such as defaults on financial institution borrowings or the initiation of debt restructuring."

Therefore, it stated, "Intensive monitoring is required to see how they respond to short-term repayment burdens, including the refinancing of short-term borrowings such as market-based debt and financial institution loans."

Meanwhile, financial authorities are reportedly examining the sales status of corporate bonds and electronic short-term bonds issued by JTBC.

There is a possibility that they may launch an investigation if mis-selling practices are confirmed, such as retail investors taking over the volume through institutional investors without JTBC or the sellers properly disclosing the risks.
※ Please note: This article was translated by AI and may contain errors.