Why Samcheon Lee’s share price has plummeted, but its credit rating is still AA+.

Samcheonri announced that it would issue two corporate bonds worth a total of 150 billion won, and after forecasting demand from institutional investors, the company increased the size of the bond issue to 240 billion won due to the success of the box office.

The securities report submitted by Samcheonri to the Financial Supervisory Service for the issuance of the bonds finally became effective on the 31st of this month. Although the effectiveness of the securities report does not guarantee investment returns, it was recognised by the regulator that the form of the securities report was acceptable.

▷Related disclosures: Samcheonri’s 31st May Effective Date (Securities Report (Debt Securities) Submitted on 18 May 2023)

But one question. Samcheonri is one of the representative stocks that suffered a stock price crash after Societe Generale (SG), but it was a success in issuing corporate bonds. Also, the credit rating of the rating agency was not bad. While some shareholders are depressed due to the stock price crash, the corporate bond issuance is actually welcomed by the market.

Doesn’t the stock price drop have any effect on the issuance of corporate bonds, and does the stock price crash have anything to do with credit ratings? Let’s see if there is any connection between the stock price crash and the issuance of Samcheonri corporate bonds.

A quick look at Samcheonri’s bonds

Samcheonri, which announced the issuance of corporate bonds, finalised the terms of issuance on the 30th of last month after forecasting institutional investor demand. Samcheonri issued two corporate bonds, one worth KRW 90 billion and the other worth KRW 150 billion.

Originally, the total size of the two bonds was 150 billion won, but after conducting a demand forecast for institutional investors on the 22nd of last month, we confirmed a demand of 68.5 billion won, which is more than four times higher than the target amount of 150 billion won. Riding on the wave of this success, Samcheonri increased the size of the corporate bond issue by 1.6 times.

In order for a company to raise funds by issuing corporate bonds, it must obtain a rating from a credit rating agency and attach it to its securities filing. Samcheonri received a corporate bond rating of ‘AA+’ and a rating outlook of ‘stable’ from both Korea Credit Rating and Nice Credit Rating.

AA+ is the second highest rating for corporate bonds after AAA, which is the highest rating. The outlook is the second highest rating after positive, which means that the company will maintain its current rating (AA+) unless there is a change in the outlook. This means that the company is a stable company that pays interest on time and pays off the principal on time and is unlikely to change its rating significantly in the future.

On the 31st of last month, Samcheonri received subscriptions from institutional investors and ultimately secured 240 billion won, which it will use to purchase gas tanks.

The final interest rate for the bonds is 4.231% for the 90 billion won bond and 4.274% for the 150 billion won bond.

The stock price has plummeted, so why is the credit rating solid?

Basically, the higher the credit rating of a corporate bond, the more stable the investment. Therefore, the AA+ credit rating and stable credit outlook that Samcheonri received when issuing the corporate bond had some influence on the success of the corporate bond.

However, Samcheonri’s stock price, which once exceeded 500,000 won, is currently in the low 100,000s after a sharp drop on 24 April. Samcheonri’s high credit rating may seem ironic to investors in the so-called “50th floor” (a term used among stock investors to describe those who invested in the $500,000 range).

However, under the credit rating system, it is difficult to reflect this in the credit rating just because the stock price has fallen. When credit rating corporate bonds, the credit rating focuses on the ability to repay the principal when lending money to the company, that is, the ability to repay the principal in the future.

Korea Credit Rating, which was entrusted with the rating of Samcheonri’s corporate bonds, assigned the credit rating based on the company’s monopoly in the region and its leading market position in Korea, the stability of its revenue structure due to its cost-compensation pricing, its LNG power generation and collective energy business through its own business and affiliates토토사이트, and its smooth cash flow and very good financial stability.

NICE Credit Rating also assigned Samcheonri’s corporate bonds a credit rating based on the company’s strong market position in the city gas business, diversified business portfolio including power generation, collective energy, and automobile sales, and very good financial stability.

“The stock manipulation incident caused a significant drop in Samcheonri’s share price, but in fact, stock issues are not an important factor in credit ratings,” said an official from a credit rating agency. “In corporate bond ratings, it is important that the company can repay the money well in the future, and since Samcheonri has a monopoly on the city gas business and has stable earnings and cash assets, the stock manipulation incident did not affect the credit rating.”

“If Samcheonri was directly involved in the stock price manipulation, I don’t know, but it’s not something the company did, so it doesn’t have much to do with the credit rating,” the official added.

In other words, the credit rating of a corporate bond only looks at the company’s ability to pay back the money on time, but it is not related to the share price flow at all. Just as a rise in the share price does not increase the credit rating of a company, a fall in the share price does not reduce the credit rating of the company.

Stock price plunge mentioned in the investment risk in the securities report

However, when Samcheonri issued the corporate bonds, it mentioned the stock price crash caused by SG Securities and the stock price manipulation that triggered it as an investment risk.

In its securities filing, Samcheonri explained the share price trend from January 2013 to April this year, revealing that the company’s stock price, which was 113,000 won in May last year, began to rise sharply and reached an intraday high of 524,000 won per share on 3 April.

Since 24 April, the stock price has fallen to the 300,000 won range, and Samcheonri’s stock price is currently in the low 100,000 won range (112,300 won as of the 31st closing price).

Samcheonri said it believes that the share price plunge was caused by large-scale selling from certain foreign securities firms, as well as the sale of spot shares by ordinary shareholders and the closing of contract for difference (CFD) transactions.

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