[Edaily Marketin Reporter LEE GEON-EOM ] KleanNara(004540)is facing severe liquidity pressure due to exhausted borrowing capacity and has resorted to a stopgap measure: using capital reduction gains accumulated from past capital restructuring to wipe out its book losses. With short-term debt due within one year far exceeding its available cash reserves, and most of its prime assets pledged as collateral to financial institutions, the company is finding it difficult to secure additional funding. As the company continues to post losses, this move is merely creating an illusion of a sound financial structure, and concerns about a decline in its creditworthiness are expected to grow.

According to the Financial Supervisory Service’s electronic disclosure system on the 31st, KleanNara’s short-term borrowings and liquid bonds due within one year totaled 190 billion won as of the end of the first quarter of this year. In contrast, its cash and cash equivalents amounted to only 8.2 billion won. This means the company’s immediate debt obligations exceed its readily available cash by more than 23 times.

As of the end of the first quarter of this year, KleanNara’s total debt stood at 332 billion won, with net debt at 320 billion won. Consequently, its debt-to-equity ratio and net debt-to-equity ratio are 53.7% and 197%, respectively—significantly exceeding the appropriate levels of 30% and 50%.

Borrowing from the Owner’s Family Even Mobilized

With available cash running dry, the company’s ability to secure liquidity through additional borrowing is limited. This is because 310.8 billion won—76.6% of its total tangible assets of 406 billion won—is already pledged as collateral to financial institutions. With most of its prime assets tied up as collateral, this is also weighing on the company’s borrowing capacity.

Ultimately, the company turned to the owner’s family for help. In the first quarter of this year, the company secured a new 35 billion won loan from Ms. Koo Mi-jeong, a related party, incurring 232 million won in interest expenses in the process. The fact that the company is relying on financial support from the largest shareholder’s family to secure liquidity underscores the severity of its financial burden. Ms. Koo is the spouse of Choi Byung-min, Honorary Chairman of KleanNara, and the mother of Chairman Choi Hyun-soo.

Faced with these limitations in securing liquidity, KleanNara has even resorted to stopgap measures—such as offsetting accumulated losses using gains from a stock split—to mask its financial pressures. KleanNara’s retained earnings (accumulated losses), which stood at minus (-) 55.1 billion won at the end of last year, turned to a surplus of 6.2 billion won by the end of the first quarter of this year.

This was not the result of cash inflows from operating activities, but rather the result of offsetting accumulated losses with gains from a stock split. KleanNara allocated 69.6 billion won in “other paid-in capital” (gains from a stock split)—accumulated through past stock splits without compensation—to cover its accumulated losses during the first quarter of this year.

While the financial statements may suggest that the accumulated deficit has been resolved, this is far from a genuine capital increase or profit generation. This is because offsetting the accumulated deficit with gains from a stock split is merely a stopgap measure—using an accounting surplus generated by canceling shareholders’ shares without compensation to cover the accumulated deficit.

Considering that, in essence, a stock split without compensation is carried out at the expense of shareholders’ unilateral losses and sacrifices, it can be interpreted that only the trace of the loss on the books has been erased, while the fundamental burdens—the erosion of shareholder value and the deterioration of the financial structure—remain entirely unresolved.

Persistent Weakness in Core Business

The problem is that, despite these stopgap measures, KleanNara’s profitability has shown little sign of recovery. KleanNara’s operating loss for the first quarter of this year was 4 billion won, remaining at a level similar to the 3.9 billion won recorded in the same period last year. The PS business—its paperboard division—alone posted an operating loss of 4.9 billion won. The net loss for the period was 7.2 billion won.

Cash flow from operating activities recorded a net inflow of 21.4 billion won in the first quarter. However, this was largely due to an improvement in working capital resulting from a 14.7 billion won reduction in inventory—driven by adjustments to factory operations and inventory clearance—as well as the collection of accounts receivable and other receivables. Given that the net loss for the period reached 7.2 billion won, analysts assess that this cash inflow is largely temporary, resulting from a reduction in working capital rather than an improvement in core business profitability.

Given this situation, downward pressure on the company’s credit rating appears to be mounting. Previously, Korea Ratings Corporation(034950)downgraded KleanNara’s unsecured corporate bonds and corporate credit rating by one notch from “BBB (Negative)” to “BBB- (Stable)” in its first-half regular assessment. Given that the interest rate on ‘BBB-’ rated 3-year bonds is exceeding the 10% range, analysts assess that it is effectively difficult for the company to issue corporate bonds. The ratings for commercial paper and electronic short-term bonds were also downgraded from A3 to A3-.

Yoo Jun-wi, a senior researcher at Korea Ratings Corporation, stated, “Improving operating cash flow generation is essential to reduce the increased debt burden,” adding, “Given that investment in the construction of a new waste incinerator is expected to continue through 2026 and considering the weakened cash flow generation capacity, the company will continue to face an excessive financial burden in the medium term.”