Indebted CJ Group moves to generate cash through divestment

Published : Dec 25, 2019 - 17:57 Updated : Dec 25, 2019 - 19:19

Korean food-to-entertainment conglomerate CJ Group is moving to generate cash through divestment efforts by its affiliates this month, making potential room to tackle the group’s snowballing liabilities.

The group’s debt -- which stood at 16.6 trillion won ($14.3 billion) as of end-June according to Korea Ratings -- has cast a shadow on Chairman Lee Jae-hyun’s “Great CJ 2020” initiative to secure 100 trillion won in annual group revenue, pushing the conglomerate to the edge in financial terms. This debt level, which was a twofold growth from 2 1/2 years earlier, was largely attributable to mergers and acquisitions binge.

While some of the key affiliates have been weighed down by worsening profitability, the recent deleveraging efforts are expected to help the group pick up the pieces, according to analysts.

(CJ Group)

Such actions include a recently closed sale of a majority stake in pay TV company CJ Hello to LG Uplus, which generated 800 billion won in cash for CJ Hello’s parent company CJ ENM. This deal came in the wake of a separate sale worth 107.9 billion won in cash to hand 4.99 percent stake in Studio Dragon over to Netflix.

Also, some 1.1 trillion won of Seoul real estate was disposed of earlier this month, including the residence of late Chairman Lee Maeng-hee.

These real estate transactions, along with a 500 billion-won fundraising scheme, have “eased the downward pressure on credit ratings” for CJ CheilJedang by cutting the company’s net debt by some 1 trillion won from an estimated 10.6 trillion won as of end-June, according to KIS Ratings analyst Han Tae-il.

Another CJ arm, multiplex cinema chain operator CJ CGV, is expecting to close a transaction announced in November, which could earn 333.6 billion won from investors including private equity MBK Partners and brokerage Mirae Asset Daewoo. The transaction will complete CJ CGV’s Asian operation restructuring and at the same time reduce CJ CGV’s debt level, as 184.5 billion won in cash will be in the hands of CJ CGV to repay debt, according to Korea Ratings credit analyst Kim Seung-bum.

Over the past few years, CJ Group has been on an M&A spree in its global push through dozens of deals, such as CJ CheilJedang’s 2 trillion-won takeover of US frozen food company Schwan’s in 2019 and CJ Logistics’ 270 billion-won acquisition of US-based DSC Logistics in 2018 and 450 billion-won acquisition of China’s Tokin Logistics in 2016.

Earlier divestment efforts, including CJ Foodville’s 200 billion-won stake sale of coffeehouse chain A Twosome Place this year and CJ CheilJedang’s 1.3 trillion-won selloff from CJ Healthcare in 2018, had stopped short of offsetting the soaring debt level.

By Son Ji-hyoung (consnow@heraldcorp.com)