Lotte E&C issues second AAA-rated ABS worth W300b

Lotte Engineering & Construction announced Tuesday that it had successfully issued 300 billion won ($195 million) in asset-backed securities, using construction payment receivables from housing project sites nearing completion and affiliate construction sites as underlying assets.

The ABS received a AAA credit rating — the highest available — allowing the company to issue the securities at a lower interest rate than would have applied under its own corporate credit rating of A0, significantly reducing financing costs. The 300 billion won raised is split evenly into two tranches of 150 billion won each, with maturities of one year and 15 months. A consortium of major brokerages — including KB Securities, Hana Securities, Kiwoom Securities, Samsung Securities and Korea Investment & Securities — participated as underwriters.

The issuance is the second in a series, following a first ABS backed by construction payment receivables issued in May. Sustained market demand has reinforced investor confidence in the ABS structure that Lotte Engineering & Construction developed in-house.

The company broadened the pool of underlying assets beyond housing sites nearing completion to include receivables from affiliate construction projects, strengthening the structural stability of the product. Combined with credit support from financial institutions and the company's own deposit management, this enabled Lotte Engineering & Construction to secure the AAA rating and establish a stable funding framework.

Lotte Engineering & Construction expects the ABS issuance to significantly improve its cash recovery cycle. Under typical construction industry practice, recovering funds after construction costs are disbursed takes an average of two to six months. With this ABS structure, the company can convert receivables into cash at the same time construction costs are paid out. The company projects it will recover approximately 770 billion won in construction costs ahead of schedule by the first quarter of 2027, while also cutting financing costs and securing more stable cash flow.

Amid the fundraising activity, Lotte Engineering & Construction has shown a clear earnings recovery. Its first-quarter operating profit reached 50.4 billion won, roughly 12 times the figure from the same period a year earlier. Project financing contingent liabilities — a concern in the market — have also been reduced to around 2.4 trillion won as of the end of June through the conversion of projects including the Gwangju Ssangnyeong Park development and Homeplus stores in Bucheon Sangdong and Dongdaemun to full project financing. The company plans to cut that figure further to around 2.2 trillion won by year-end.

"The successful second issuance of AAA-rated ABS reaffirms the market's strong confidence in Lotte Engineering & Construction," a company official said. "We will continue to strengthen our financial structure through rigorous cash flow management and profitability-focused operations, and demonstrate corporate value that lives up to that trust."

Lotte Engineering & Construction had been preparing the ABS issuance with credit rating agencies and financial institutions since the start of the year. From early April, it held investor relations events for major financial institutions and institutional investors to share its earnings performance and details of the planned ABS. In May, it completed a first issuance of 300 billion won in AAA-rated ABS backed by construction payment receivables from project sites scheduled for completion.