All three tranches sold out at AAA rating

Early recovery of 470 billion won in construction costs expected by first half of next year

Lotte Engineering & Construction's headquarters in Seocho-gu, Seoul. [Yonhap]
Lotte Engineering & Construction's headquarters in Seocho-gu, Seoul. [Yonhap]

Lotte Engineering & Construction said Thursday it successfully issued 200 billion won ($147 million) in third-tranche asset-backed securities at the top AAA credit rating, using a construction-payment receivables securitization product it developed in-house.

The company had previously issued 300 billion won in construction-payment receivables ABS each in May and July. With the latest third-tranche issuance, it has now secured a total of 800 billion won in securitized funding.

The third-tranche securities were issued with a one-year maturity. KB Kookmin Bank served as lead manager, with Kiwoom Securities, Samsung Securities, Korea Investment & Securities and KB Securities participating as underwriters, and the entire issuance sold out. The strong participation from the financial sector confirmed the market's confidence in the structured bonds Lotte E&C developed in-house.

The ABS was backed by construction-payment receivables from six project sites, including housing developments and projects by group affiliates. Including affiliate project sites strengthened asset stability, while a structure combining bank credit facilities and deposit management helped the securities achieve the top AAA rating. The company raised funds on competitive terms despite market volatility, reducing financing costs and diversifying its funding channels.

[Provided by Lotte Engineering & Construction]
[Provided by Lotte Engineering & Construction]

With the third ABS issuance, Lotte E&C expects to significantly improve its cash flow by shortening the gap between construction work and payment collection, enabling early recovery of approximately 470 billion won in construction costs by the first half of 2027.

The company is also moving to shore up its financial stability by proactively securing liquidity and reducing contingent liabilities tied to real estate project financing. It has fully repaid the 1.2 trillion won in senior borrowings under "Project Shalom," a 2.3 trillion won project financing fund established at the group level, and plans to reduce the remaining 1 trillion won balance to around 800 billion won by year-end through additional repayments and restructuring. Total project financing contingent liabilities are being managed toward a target of cutting them from 2.4 trillion won at the end of August to around 2.2 trillion won by year-end.

"The successful third-tranche ABS issuance, following the first and second, once again confirms the market's trust in the financial product we developed in-house," a company official said. "We will maintain solid financial health and continue improving our earnings on the back of proactive liquidity management and project financing risk control."

Meanwhile, Lotte E&C recently secured the construction contract for the reconstruction of Dogok Woosung Apartments in Gangnam-gu, Seoul, pushing its cumulative urban redevelopment project orders this year past 4 trillion won.


hwshin@heraldcorp.com