[Edaily Marketin KIM YEON-SEO Reporter] Lotte Auto Lease is entering the public corporate bond market backed by a principal and interest payment guarantee from its parent company, LOTTE rental. The company plans to raise a total of 30 billion won and may increase the issuance to a maximum of 60 billion won depending on the results of the bookbuilding process.

According to investment banking (IB) industry sources on the 3rd, Lotte Auto Lease will conduct a bookbuilding process for institutional investors on the 7th to issue corporate bonds totaling 30 billion won this month. By tranche (maturity), the company plans to raise 15 billion won in 1.5-year bonds and 15 billion won in 2-year bonds. The company has left open the possibility of increasing the issuance amount to a maximum of 60 billion won, depending on the results of the bookbuilding.

Lotte Auto Lease has proposed an interest rate within a target yield band of -40 basis points (bps; 1 bp = 0.01 percentage point) to +40 bps relative to the rating-based yield determined by private bond rating agencies.

These corporate bonds are being issued with a principal and interest payment guarantee from LOTTE rental. Consequently, Lotte Auto Lease’s corporate bonds have been assigned an “A+ (Stable)” rating by domestic credit rating agencies such as Korea Ratings and NICEHoldings.

LOTTE rental guarantees all payment obligations for these corporate bonds, including principal and interest payments. If Lotte Auto Lease fails to pay the principal and interest by the interest payment date or the principal repayment date, LOTTE rental will fulfill its guarantee obligation by depositing the corresponding amount with the principal and interest payment agent.

Credit rating agencies assessed that the strong business foundation and stable profit-generating capacity of the guarantor, LOTTE rental, underpin the creditworthiness of Lotte Auto Lease’s corporate bonds.

Chae Young-seo, a senior analyst at Korea Credit Rating, stated, “We have assigned an ‘A+ (Stable)’ credit rating to LOTTE rental’s unsecured corporate bonds,” adding, “LOTTE rental’s credit rating is supported by its strong business foundation and stable profit-generating capacity.”

Lotte Auto Lease’s own business foundation is also considered stable. Lotte Auto Lease has built a diverse automotive finance portfolio centered on commercial vehicles, including auto leases, installment financing, and loan receivables. Kim Da-som, a senior researcher at NICEHoldings, assessed, “The company possesses strong profit-generating capabilities based on a stable business portfolio centered on automotive finance.”

As of the end of June this year, Lotte Auto Lease’s asset portfolio consisted of auto leases (73.4%—the largest share), loan receivables (20.1%), and installment financing for new and used cars (4.8%). In particular, by engaging in relatively high-margin maintenance operating leases, the company has maintained an excellent average adjusted return on assets (ROA) of 2.1% over the past five years.

However, profitability has declined somewhat due to increased depreciation expenses resulting from the recent restructuring of its asset portfolio toward operating leases, coupled with ongoing credit loss burdens from existing installment financing assets. Adjusted ROA for the first half of this year stood at 0.6%. Senior Researcher Kim stated, “We expect profitability to recover in the medium term through the resolution of non-performing installment financing assets and a focus on new operating lease business.”