Lotte, Meritz form joint fund to tackle debt crisis at Lotte construction unit

[Sources : Lotte, Meritz]

Lotte Group will join hands with Meritz Securities Co. to create a joint debt fund to support Lotte Engineering & Construction Co., a construction affiliate struggling to secure liquidity amid the country’s credit crunch.

According to sources on Thursday, Lotte Group agreed with Meritz Securities to create a 1.5 trillion won ($1.18 billion) fund to support Lotte E&C’s multi-trillion-won real estate project financing (PF), including repayment of debt at maturity.

As for financing structure, major affiliates of Lotte group, such as Lotte Corp., Hotel Lotte Co., and Lotte Fine Chemical Co., will be responsible for about 600 billion won as subordinated creditors, while Meritz Securities for the remaining 900 billion won as a senior creditor.

The fund will be used to purchase some maturing asset-backed commercial paper (ABCP) guaranteed by Lotte E&C.

Lotte Group has focused on self-rescue measures by mobilizing group affiliates to provide financial support for the construction unit, which faces a liquidity crisis after the Legoland theme park developer’s debt default caused a crunch in the local public debt market.

Lotte E&C already borrowed more than 1.1 trillion won from Lotte Chemical, Lotte Fine Chemical and Lotte Home Shopping, among others.

The scale of Lotte E&C’s PF-backed securities maturing in the first quarter of this year is expected to reach around 3 trillion won.

Lotte E&C sold 250 billion won worth of corporate bonds in December last year. The company also borrowed 300 billion won from Japan’s Mizuho Bank and 110 billion won from KB Kookmin Bank.