Lotte Rental raises $90m in overseas bond market without bank guarantees

Lotte Rental has raised long-term funds in overseas capital markets, issuing $90 million in foreign-currency bonds without bank guarantees or support from group affiliates — a move the company says marks a meaningful diversification of its funding structure.

The company announced Wednesday that it issued a three-year, $90 million floating-rate note on June 30, equivalent to approximately 140 billion won ($90.1 million) at the exchange rate on the issuance date.

The deal targeted overseas investors as interest rate pressures in the domestic bond market have grown. Lotte Rental said it secured the funds at a rate up to 40 basis points below what it would have paid on a comparable won-denominated bond. One basis point equals 0.01 percentage point.

The issuance is expected to cut interest expenses by roughly $360,000 a year, adding up to savings of about 1.8 billion won over the three-year term. Lower funding costs are expected to support both profitability and price competitiveness in its rental service business.

The most notable aspect of the deal is that it was completed without any payment guarantee. Lotte Rental attracted investors based solely on its own international credit ratings, with no bank guarantee or group affiliate backing.

The company holds Baa3 and BBB- ratings from Moody's and Fitch, respectively — both investment-grade with a stable outlook — and has maintained those ratings for three consecutive years. The ratings are on par with those of global automaker Ford and are equivalent to AA+ to AA- under domestic Korean credit assessment standards.

Major institutional investors from Taiwan, Hong Kong and Singapore participated in the offering. By broadening its overseas investor base beyond its traditionally domestic-focused funding structure, Lotte Rental said it has secured additional options for navigating future financial market volatility.

Investors pointed to the company's steady earnings as a key draw. Lotte Rental posted sales of 2.92 trillion won and operating profit of 312.5 billion won last year, up 4.5 percent and 9.7 percent, respectively, from the previous year.

In the first quarter of this year, the company recorded sales of 730.9 billion won and operating profit of 83.6 billion won, up 6.6 percent and 24.8 percent year-on-year, respectively. The faster growth in operating profit relative to sales points to a continuing improvement in profitability.

Lotte Rental attributes the earnings improvement to a portfolio restructuring focused on its core rental business and cost innovation efforts. Overseas investors, for their part, assessed the company's underlying business fundamentals and financial stability rather than the presence of a guarantee.

The proceeds will be used for liquidity management and to grow the company's rental asset base. Lotte Rental said it plans to use the issuance as a springboard to expand access to overseas capital markets and further diversify its funding channels over the medium to long term.

A floating-rate note is a bond whose interest rate adjusts periodically in line with a market benchmark rate. Unlike fixed-rate bonds, FRNs reduce the interest burden when market rates fall, making them a preferred funding instrument among overseas institutional investors.

"This FRN issuance is significant in that we were able to draw participation from global investors on the strength of our own credit rating alone," a Lotte Rental official said. "We plan to continue diversifying our funding structure to respond flexibly to changes in the financial market environment, and to expand our business growth foundation on the back of the liquidity we have secured."