[비즈한국] Concerns are being raised regarding the financial structure of E-Land World. Although E-Land World recorded an operating profit in the first three quarters of last year, it posted a net loss due to high financial costs. Recently, it even issued corporate bonds to repay debt. While E-Land World is taking steps to sell assets such as the shoe retail chain 'Folder', the credit rating industry suggests that further asset sales are necessary to improve its financial structure.
E-Land World is a fashion-specialized company that distributes various brands such as SPAO, MIXXO, and New Balance in South Korea. Recently, it has also been taking steps toward new businesses, such as adding information and communication technology (IT) related businesses to its business purposes (Related article: [Exclusive] Fashion company E-Land World adds information and communication business to its objectives… Is it challenging the IT sector?).
E-Land World recently announced that it would sell the shoe specialty store 'Folder' to ABC Mart. The sale price was not disclosed due to confidentiality clauses. Regarding the sale of Folder, E-Land World stated, "It is a strategic choice to leap into a new stage of growth."
Some in the business world view the sale of Folder as an attempt by E-Land World to improve its financial structure. The credit rating industry is also voicing concerns about E-Land World's financial health. According to the quarterly report, as of the end of September last year, E-Land World's total liabilities amounted to 6.9082 trillion won, with a debt-to-equity ratio of 175.74%. Due to its high level of debt, financial costs are also significant. E-Land World recorded an operating profit of 202.4 billion won in the first three quarters of last year, but simultaneously posted a net loss of 65.3 billion won. The expenditure on financial costs (324.3 billion won) during this period had an impact.
Unless E-Land World significantly reduces its debt or sees a substantial rise in operating profit, it is expected that the burden of financial costs will continue. As E-Land World has no parent company, it is difficult to expect support from affiliates. This is because if other affiliates were to acquire shares of E-Land World through paid-in capital increases, the governance structure could become complicated. E-Land World holds 44.76% of its own shares, making itself the largest shareholder. The second-largest shareholder is E-Land Group Chairman Park Sung-soo with a 40.68% stake, and the third is Kwak Sook-jae (Chairman Park's wife) with an 8.06% stake.
Baek Joo-young, a senior researcher at NICE Investors Service, assessed, "Considering the complexity of the funding structure, E-Land World's funding stability is relatively weaker compared to its competitors," and added, "Due to heavy borrowing, its financial stability indicators are at a somewhat unstable level."
In the midst of this, E-Land World recently issued corporate bonds. E-Land World initially disclosed in January that it would issue corporate bonds worth 30 billion won, but increased the issuance scale to 41 billion won after demand forecasting. E-Land World stated that it issued the corporate bonds for the purpose of debt repayment. Within February of this year alone, E-Land World must repay approximately 43 billion won in unsecured bonds and short-term corporate bonds. The interest rate for the corporate bonds issued this time is 6.65%. However, the interest rates for the unsecured and short-term bonds being repaid in February are in the 5.90–6.50% range. It is a situation where the company is issuing new bonds at a higher interest rate to repay existing debt.
The fire at the E-Land Cheonan logistics center that occurred in November last year could also be a variable. E-Land World's fashion products were stored in the logistics center. Because of this, there were disruptions in the delivery of fashion products after the fire. E-Land World plans to receive insurance money for the fire, but it could have a negative impact on its fourth-quarter performance last year.
Regarding the logistics center fire, an E-Land official stated, "As an investigation is underway, specific details regarding the receipt of insurance money have not been decided," adding, "We immediately placed reorders after the fire to commercialize the products, and finished last year with growth in sales."
However, the credit rating industry still evaluates that uncertainty persists. Oh Da-yeon, a senior researcher at Korea Investors Service, stated, "As it is expected that there will be a time lag until the receipt of insurance money, it is judged that financial indicator volatility will increase in the short to medium term," and added, "We plan to monitor not only the scale and timing of the insurance proceeds but also the scale of expenditures for restoring the logistics center and whether borrowing burdens are being controlled following investment expansions."
Furthermore, there is a diagnosis that asset sales are necessary. Although E-Land World decided to sell Folder recently, the analysis is that additional asset sales are required to improve its financial structure. Senior researcher Oh Da-yeon stated, "It is judged that securing funds through the sale of non-core assets is necessary for net repayment of borrowings," but also noted, "Due to the continued downturn in the construction industry, there are setbacks and delays in asset sales."
An E-Land official explained, "As we were finalizing tasks like the office relocation last year, a lot of costs were incurred regarding investment," and added, "Performance in our core business is continuing to improve, and as major investments have been concluded, we believe financial indicators will also gradually stabilize.".