Online shopping helps Hyundai Logistics gain

Hyundai Logistics, rated junk six months ago, is set to almost halve borrowing costs this week as it helps deliver record online purchases by Koreans.

The nation’s third-largest delivery service company plans to raise 40 billion won ($37 million) selling two- and three- year bonds April 10, regulatory filings show. The about 2.698 percent coupon on the 2017 notes compares with 4.5 percent paid on similar notes in 2013. Two-year BBB+ won corporate debt yields an average 4.746 percent.

Hyundai Logistics’ fortunes improved after a consortium led by Lotte Group, owner of Korea’s largest department store chain, and Japan’s Orix bought an 88.8 percent stake in September, sending its debt rating to BBB+ from junk. Internet shopping in Asia’s fourth-largest economy surged to a record 45 trillion won last year, bolstering the express delivery market.

The “positive outlook shows the possibility of another credit rating upgrade,” Kim Bong-kyun, a senior analyst at Fitch Ratings Ltd.’s local affiliate Korea Ratings Corporation, said. Delivery company earnings have “shown improvement with record online shopping for both foreign and domestic products. This trend will likely continue for a while.”

Korea Ratings upgraded the Seoul-based company from BB+ in October after the acquisition. Igis I Corporation, in which Lotte Group and Orix each own a 35 percent stake, purchased the majority stake in Hyundai Logistics from Hyundai Group.

Lots of Boxes

Some 1.6 billion boxes - or about 32.1 boxes for every man, woman and child - were delivered in Korea in 2014, up 7.5 percent from a year earlier, Korea Integrated Logistics Association data show. Hyundai Logistics said on March 31 it has inked an agreement with iCB, the Korean partner of Alibaba Group Holding’s China Smart Logistics Network, also known as Cainiao, to offer logistics services for Korean companies on Alibaba’s Tmall.com and Alipay.

The share prices of Korea’s biggest logistics service companies, CJ Korea Express and Hanjin Transportation have rallied 68 percent and 149 percent, respectively, over the past 12 months as of April 8. Hyundai Logistics’ stock, which trades over-the-counter and not on the nation’s main bourse, has increased 30 percent since late September, when the acquisition was completed.

“Growth for online shopping from both Korean and foreign shoppers indicates the future growth for its overseas branches,” Korea Ratings’ Kim said. Competition may intensify thanks to new market entrants such as National Agricultural Cooperative Federation, Kim added.

Chinese Shopping

Overseas online shopping by consumers in China is increasing very rapidly and Hyundai Logistics will expand its international service “drastically,” Chief Executive Officer Lee Jae-bok said in an April 7 email. “With the domestic market showing stable growth, overseas logistics will be a new growth engine,” he said.

China’s annual business-to-consumer Internet shopping transactions may double to 4.5 trillion yuan ($725 billion) by 2017, according to figures from iResearch Consulting Group. Alibaba’s TMall controls more than half the online shopping market in China, Bloomberg Intelligence analyst Praveen Menon wrote in a Jan. 21 note.

Lotte Group, Korea’s fifth-biggest conglomerate with interests from shopping malls to candy, agreed to buy the nation’s largest car rental service provider, KT Rental for 1.02 trillion won last month as it seeks to diversify. It also formed a 1 trillion won mergers and acquisitions fund with the National Pension Service.

Online Shift

Lotte Shopping’s revenue decreased for the first time last year since it went public in 2006. Sales via mobile phones in Korea soared 126 percent last year to 14.8 trillion won with online cosmetic purchases increasing the most in the fourth quarter from the previous period, data from Statistics Korea show.

The credit ratings of Hyundai Merchant Marine and Hyundai Logistics were cut to BB+, the highest speculative grade, in March last year due to the continued slump in the shipping industry and uncertainty about restructuring plans.

Hyundai Motor was spun off Hyundai Group in 2000 amid efforts to reduce the power of so-called chaebol business groups. Hyundai Heavy Industries separated in 2002, while the department store unit was jettisoned in 1999.

Korean companies have sold 12.2 trillion won of bonds this year, a 21 percent increase from the same period of 2014, Bloomberg-compiled data show, as the Bank of Korea keeps benchmark rates at unprecedented levels to spur economic growth. Yields on three-year corporate notes rated AA-, the benchmark according to the Korea Financial Investment Association, have dropped 46 basis points this year to 1.978 percent.

“Investors seem to be mainly attracted by the fact the company has become an affiliate of Lotte Group, which could boost the chance of a credit-rating upgrade and create synergies,” said Lee Kyoung-rok, a credit analyst at Daewoo Securities. “We don’t expect to see rapid growth due to the competition, but the point is, the company operates a stable business.”

Bloomberg