“Credit Checkpoint” is a column that assesses the credit rating risks of companies preparing to issue corporate bonds by examining their financial structure and cash flow. It evaluates a company’s short- and medium-term financial stability by focusing not only on the numbers in the financial statements but also on the quality and sustainability of its cash flow. We highlight key financial indicators and potential risk factors to help corporate bond investors and market participants assess a company’s creditworthiness from a more comprehensive perspective. <Editor’s Note>

[Edaily Marketin Reporter LEE GEON-EOM ] Despite CHONGKUNDANG HOLDINGS CORP.(001630)achieving a marked rebound in profitability in the first quarter of this year, assessments suggest that its financial stability is being undermined by a debt structure that is extremely heavily weighted toward short-term debt. Although the company has succeeded in improving profitability thanks to new products such as “Wigobi,” the reality is that even if it were to pool all its immediately available cash, it would struggle to cover even 30% of the short-term debt it must repay within a year. In particular, with massive capital expenditures (CAPEX) anticipated, observers are pointing out the need for proactive financial management to maintain soundness.

According to the financial investment industry on the 23rd, CHONGKUNDANG HOLDINGS CORP. is set to conduct a bookbuilding process for 600억 won worth of corporate bonds on the 24th. The plan is to issue 300억 won each in 2-year and 3-year bonds, with the total amount potentially increased to up to 1,000억 won depending on the results of the bookbuilding.

CHONGKUNDANG HOLDINGS CORP.’s key selling points for this bookbuilding are its turnaround in earnings and cash generation capabilities. The company’s consolidated operating profit for the first quarter of this year was 19.3 billion won, a 62.2% surge compared to the same period last year, while net income also jumped 129.5% to 17.9 billion won. Cash flow from operating activities also turned positive, shifting from a net outflow of 2.9 billion won in the first quarter of last year to a net inflow of 26.4 billion won this year, demonstrating an improvement in profitability driven by core operations.

The problem, however, lies in the severe “short-term liquidity pressure” lurking behind these strong results. While cash and cash equivalents—calculated on a “consolidated group” basis that includes all core affiliates such as CHONGKUNDANG—are assessed as stable at around 2800억원, questions remain regarding the holding company’s actual ability to repay its debts.

In fact, CHONGKUNDANG HOLDINGS CORP.’s cash and cash equivalents as of the end of the first quarter stood at approximately 37.7 billion won, a sharp 53.1% decline from the 80.3 billion won recorded at the end of the previous year. This is due to the company reclassifying 105.5 billion won in funds into financial assets measured at fair value through profit or loss in an effort to boost returns. Even when short-term financial instruments are included, the total amount of actually available liquid assets amounts to only 145.4 billion won.

More specifically, the company is hampered by short-term borrowings totaling 4782억 won, which must be repaid or rolled over within one year. It is a precarious situation in which even if all available liquidity were poured into debt repayment, it would cover only about 30.4% of the short-term borrowings. The current ratio (83.1%), which falls short of the 100% threshold generally considered stable, is cited as a risk factor for financial soundness.

Particular concern is raised by the fact that short-term debt accounts for nearly 84.6% of the total debt, which exceeds 5600억원. This indicates that the maturity structure is excessively skewed toward short-term debt. Generally, the credit rating industry considers an appropriate short-term debt ratio to be less than 50%, with the exception of certain industries such as the rental business. CHONGKUNDANG HOLDINGS CORP.’s short-term debt ratio is nearly 1.7 times this benchmark. As cash reserves dwindled and debt increased, net debt rose to 5299억 won, a 15.1% increase from the end of the previous year. During the same period, the net debt ratio rose by 7 percentage points (p), from 50.4% to 57.4%.

The fact that large-scale long-term investment funds are required is a factor that further exacerbates this financial imbalance. CHONGKUNDANG is set to make an additional investment of 392.5 billion won by 2028 for the construction of a bio-complex R&D complex in the Baegot District of Siheung City. Additionally, funding requirements approaching the trillion-won level are expected, including a 45 billion won investment by KYONGBO PHARMACEUTICAL CO., LTD. to establish an ADC (antibody-drug conjugate) facility and a 46 billion won investment by CHONGKUNDANG BioCorporation in its Ansan plant.

As the company continues to rely on short-term borrowing to fund long-term investments with extended payback periods—an abnormal financial structure—there are concerns about a vicious cycle of using external borrowing to roll over existing debt. Amid persistently high interest rates, the current structure, which is focused solely on rolling over debt, will ultimately lead to a massive burden of financial costs that will inevitably erode the operating profit the company has managed to generate.

Kim Jin-hong, a senior researcher at Korea Ratings Corporation, explained, “Funding requirements are expected due to planned large-scale capital expenditures, such as the construction of CKDBioCorporation’s bio-complex R&D complex,” adding, “The consolidated net debt-to-EBITDA ratio for the group is projected to rise to around 2.5 times in 2026–2027.”

He added, “It will be necessary to monitor the level of profitability fluctuations caused by the future expansion of licensed products and the burden of R&D expenses, as well as the scale of annual cash outflows and trends in financial stability.”