[Edaily Marketin Reporter KIM YEON-SEO ] COWAY (AA-) is set to issue corporate bonds worth up to 400 billion won. Given that the company posted record-high earnings in the first half of this year and secured orders in the trillions of won during previous bookbuilding rounds, all eyes are on whether institutional investors will continue to show strong interest this time as well.

According to investment banking (IB) industry sources on the 12th, COWAY will conduct a bookbuilding process for institutional investors on the 2nd of next month to issue corporate bonds totaling 200 billion won. The tranches (maturities) consist of a 2-year tranche worth 60 billion won, a 3-year tranche worth 110 billion won, and a 5-year tranche worth 30 billion won.

Depending on the results of the bookbuilding, the company plans to increase the issuance amount to a maximum of 400 billion won. The target interest rate band for the public offering has been set at –30 bp to +30 bp (basis points; 1 bp = 0.01 percentage points) relative to the rating-based interest rates for each maturity as assessed by independent private bond rating agencies. NH INVESTMENT & SECURITIES, KB Securities, Korea Investment & Securities, and Shinhan Investment & Securities are serving as lead underwriters.

COWAY has recently enjoyed a string of successes in the corporate bond market. In February, the company received 1.63 trillion won in orders during the bookbuilding process for a public offering targeting a total of 330 billion won. Last August, it also saw 1.56 trillion won in buy orders for a 150 billion won offering.

The fact that COWAY posted record-high earnings in the first half of this year is also expected to have a positive impact on investor sentiment. COWAY’s revenue for the first half of this year reached 2.7719 trillion won, a 13.9% increase compared to the same period last year. Operating profit for the same period rose 11.1% to 504.1 billion won.

The market anticipates that COWAY will be able to surpass the 5 trillion won annual revenue mark, a milestone it failed to achieve last year. Analysts note that strong sales of core product lines, such as water purifiers and mattresses, combined with the growth of its overseas rental business, will support this revenue expansion.

Korea Credit Rating Agency and NICEHoldings have assigned COWAY a credit rating of “AA-” with a “Stable” outlook. According to NICEHoldings, COWAY has recorded excellent operating profitability, averaging 17.9% over the past five years.

Rising raw material costs, an increase in financial lease discount rates, and cost burdens associated with the expansion of overseas rental operations are cited as factors that could constrain profitability improvements. However, given its strong market position and stable business foundation in the domestic rental market, the company is expected to maintain its current level of profitability.

The working capital burden resulting from the expansion of domestic and overseas rental businesses is a factor that needs to be monitored from a financial stability perspective. This is because, amid ongoing demand for investment capital due to product diversification and overseas business expansion, the company’s ability to generate free cash flow could be limited if shareholder return policies, such as dividends, are expanded.

Lee Kyu-hee, a senior researcher at NICEHoldings Credit Rating, stated, “As cash flow pressures, such as working capital requirements, increase during the expansion of domestic and international rental operations, the generation of free cash flow is expected to remain limited for the time being.”

He added, “We plan to closely monitor the impact on cash flow and financial stability resulting from increased shareholder returns—such as dividend payments—as well as investment requirements stemming from product diversification and the expansion of overseas operations.”