이 기사는 2021년 06월 24일 07:27 thebell 에 표출된 기사입니다.

South Korea’s multiplex chain CJ CGV is trying to make a turnaround after being hit hard by the Covid-19 pandemic last year, but it won't likely to be easy amid deteriorating financial structure.

CJ CGV has recently decided to lend 90.3 billion won ($79 million) to CGI Holdings, which has UVD Entertainment and CJ CGV Vietnam as wholly-owned subsidiaries and a 51% stake in PT GRANA LAYAR PRIMA TBK.

CGI Holdings plans to use the money to improve its financial structure by repaying debts. Total debt held by CGI Holdings increased to 195.2 billion won in the first quarter from 187.5 billion won at the end of 2020. Its revenue decreased to 80 million won from 300 million won in just one year, with its net profit swinging to a net loss.

Last year, CGI Holdings implemented a capital reduction without refund to improve its financial structure.

CJ CGV established its integrated entity CGI Holdings by combining its overseas businesses in Hong Kong, China, Vietnam, and Indonesia at the end of 2019. Then the cinema chain raised funds by selling new shares in CGI Holdings to outside investors.

A consortium of MBK Partners and Mirae Asset Daewoo Private Equity invested 333.5 billion won in CGI Holdings and secured a 28.57% stake in the company. The remaining stake is held by CJ CGV.

The consortium made the investment under the condition that a major shareholder can exercise a call option to repurchase the stake owned by the PE firms at a certain level of internal rate of return in case the company fails to go public at a guaranteed rate of return. If the major shareholder does not exercise its call option, the PE firms can exercise drag-along rights and sell shares held by them and the major shareholder to a third party.

Industry watchers said CGI Holdings is unlikely to go public in the near future amid poor financial performance due to the Covid-19 pandemic and a change in the film industry, which will increase CJ CGV's future financial burden.

CJ CGV also decided to lend 45 billion won to its Turkish subsidiary in March to strengthen its financial structure. In May, CJ CGV paid 353.2 billion won to buy back a stake in Turkey's largest cinema chain MARS Entertainment from its financial investor Meritz Securities.

CJ CGV had signed a total revenue swaps (TRS) deal with the securities firm when it acquired MARS Entertainment in 2016. The financial contract obligated the cinema chain to guarantee the principal. CJ CGV will have to bear significant losses, which resulted from the sharp drop in the value of Turkish lira and the suspension of operations due to the pandemic.

The cinema chain also raised 100 billion won from IMM Investment for the MARS Entertainment acquisition. CJ CGV granted a drag along right under the condition of the IPO, but it won’t likely to prepare for the listing this year.

Amid unfavorable conditions, CJ CGV secured liquidity through a 220 billion won rights offering in August and issuance of hybrid bonds worth 200 billion won in October and December in 2020. The company also issued 300 billion won worth of convertible bonds earlier this month.

Despite its efforts, CJ CGV’s debt ratio has risen from 652% in 2019 to 1412% in 2020 and 2383% in the first quarter of this year. The issuance of convertible bonds may help the company secure liquidity, but its financial burden is expected to continue due to financial expenses.

“We have decided to lend more than 90.3 billion won to our subsidiary CGI Holdings by 2022 to improve the financial structure by repaying its debts” said an official at CJ CGV. (Reporting by Eun Kim)