JoongAng Ilbo buyers have financial room to fund acquisition: KIS report
Summary
Daou Technology, CJ Corp., Shinsegae and Saramin agreed to invest 520 billion won in JoongAng Ilbo, in a deal approved by their boards Wednesday. The capital is intended to clear the newspaper’s debts and help it exit a creditor-led workout program. Korea Investors Service said the buyers have the financial capacity to fund the transaction and that none of its rated participants faces an immediate threat to its credit standing. The consortium structure also addresses legal limits on large business groups’ ownership of general daily newspapers.
Key Facts
- Daou Technology will contribute about 189.8 billion won, CJ Corp. 185.6 billion won, Shinsegae 73.3 billion won and Saramin 71.2 billion won.
- Daou Technology reported first-half revenue of 209.7 billion won and operating profit of 36 billion won, with a 17.2 percent operating margin.
- KIS’s stress scenario projected Daou Technology’s net debt-to-EBITDA ratio would rise to 3.9 times, below the agency’s stated 5.0-times downgrade trigger.
- CJ Corp. had an AA- rating with a stable outlook, while Shinsegae had an AA rating with a stable outlook; KIS does not rate Saramin.
- Korea’s newspaper law bars companies in large business groups subject to cross-shareholding restrictions from owning more than 50 percent of a general daily newspaper.
JoongAng Ilbo headquarters in Seoul / Korea Times photo by Yun Gi-hun
Editor’s note
This article is part of a series utilizing data and reports provided by Korea Investors Service (KIS) to offer our readers in-depth insights on industry trends, corporate fiscal health and M&A deals.
In an unconventional lifeline for Korea's traditional press, a diverse corporate coalition spanning tech, retail and entertainment has agreed to rescue JoongAng Ilbo, one of the nation’s most influential conservative daily newspapers.
Under a 520 billion won ($388 million) conditional agreement approved Wednesday by the boards of Daou Technology, Saramin, CJ Corp. and Shinsegae, the newly injected capital will flow directly into the newspaper to clear its debts and pull the media outlet out of a creditor-led workout program it entered this summer.
According to an assessment by Korea Investors Service (KIS), a Moody’s affiliate, the acquiring companies possess the financial capacity to comfortably fund the transaction.
Under the agreed funding structure, Daou Technology will cover 36.5 percent of the total, or about 189.8 billion won, while CJ Corp. will contribute 35.7 percent, or 185.6 billion won. Shinsegae is participating alongside CJ as a financial investor with a 14.1 percent stake (73.3 billion won), and online job portal Saramin will provide 13.7 percent (71.2 billion won). Daou Technology and Saramin both operate under the Daou Kiwoom Group.
Sector snapshot: consortium
Industry risk: Limited — KIS sees limited credit risk for CJ (AA-) and Shinsegae (AA). It sees a manageable, though rising, debt burden for Daou Technology (A).
Key credit drivers: The deal still needs a creditors’ meeting on Nov. 6 and a bondholders’ meeting on Nov. 17, and final funding plans are pending. Also, Korean law caps any large business group at 50 percent of a daily newspaper, so the two camps will hold about 47 percent each.
Key player profiles:
Daou Technology: An IT services company at the center of Daou Kiwoom Group. It owns 42.45 percent of Kiwoom Securities. Its share of the deal is 36.5 percent, the largest of any investor.
Saramin: An online job portal and Daou Kiwoom Group affiliate. It provides 13.7 percent of the investment.
CJ Corp.: The holding company of CJ Group, whose businesses span food and entertainment. It is rated AA- by KIS and provides 35.7 percent of the deal. CJ already owned a 9.24 percent stake in JoongAng Ilbo through CJ OliveNetworks.
Shinsegae: A department store operator rated AA by KIS. It joins the CJ side as a financial investor with 14.1 percent of the deal.
JoongAng Ilbo: A Korean daily newspaper that entered a creditor-led workout this summer after liquidity problems at its parent group. It defaulted on a 137 billion won bond issue in June.
According to an evaluation by KIS — authored by researchers Lee Ju-ho, Kim Young-hun and Sung Ho-jae — the financial impact of the transaction will vary based on each participant's individual capacity and contribution size, though none of the rated participants face an immediate threat to their credit standing.
Daou Technology, stepping in as the largest single investor, carries the heaviest exposure. KIS noted that increased borrowing is "unavoidable" in the short term, as the IT services firm is already heavily invested in building a cloud data center in Jukjeon, Yongin, Gyeonggi Province. Even so, the agency deemed the burden "bearable," given the company’s underlying cash generation and financial flexibility. Daou Technology currently carries an A rating with a stable outlook on Korea’s domestic scale.
The company’s standalone finances remained solid heading into the transaction. During the first half of the year, it posted 209.7 billion won in revenue and 36 billion won in operating profit, yielding a 17.2 percent operating margin. As of late June, its debt-to-equity ratio stood at 61.8 percent, backed by 284.9 billion won in cash and financial instruments against total borrowings of 385.5 billion won, while its EBITDA covered interest costs by 8.3 times.
In a stress-tested scenario modeled by KIS — assuming Daou Technology independently finances half of a 500 billion won deal entirely through new debt — net debt would climb from 100.7 billion won to 350.7 billion won, pushing the debt-to-equity ratio to 90.5 percent and the net debt-to-EBITDA ratio from 1.1x to 3.9x. Because KIS views a 5.0x net debt-to-EBITDA ratio — combined with margin compression and delayed business execution — as a downgrade trigger, the projected 3.9x ratio remains safely below that threshold.
Jargon buster
Workout — A restructuring program led by creditors. It gives a struggling company time to repay its debts without going into court receivership.
Preferred bidder — The bidder chosen to hold exclusive talks with the seller before a final deal is signed.
Subscribing to new shares — Buying newly issued shares. The money goes to the company itself, not to its existing shareholders.
Debt-to-equity ratio — A company’s total liabilities divided by its shareholders’ equity. A higher figure means the company relies more on borrowed money.
EBITDA — Earnings before interest, taxes, depreciation and amortization. It is a rough measure of the cash a business generates from its operations.
Net debt to EBITDA — The number of years it would take a company to pay off its net debt from its cash earnings. A lower number is safer.
KIS noted that Daou Technology can also rely on steady earnings from its core IT service operations, which hold leading market positions in their sectors and draw consistent demand from group affiliates. Supplemental cash inflows from subsidiary dividends — most notably from Kiwoom Securities, which has been expanding its dividend payouts — further reinforce the company's cash flow profile. The agency added that Daou Tech’s 42.45 percent stake in the online brokerage, alongside its other asset holdings, provides substantial financial flexibility to absorb the deal.
For CJ and Shinsegae, KIS noted that the effect on their credit ratings would be limited, given their strong earning power and financial capacity relative to the expected size of their investments.
CJ serves as the holding company for a major conglomerate spanning food, logistics and entertainment, and it carries an AA- rating with a stable outlook on Korea’s domestic scale. On a standalone basis as of the end of June, the company maintained a conservative balance sheet with total borrowings of 299.5 billion won and a debt-to-equity ratio of just 12 percent. Demonstrating steady cash-generating capability, it posted a standalone operating profit of 106.6 billion won in the first half of the year.
Department store operator Shinsegae, rated AA with a stable outlook, has improved its debt profile over the course of the year. On a consolidated basis, its borrowings decreased to 4.96 trillion won at the end of June from 5.33 trillion won at the close of last year, helping drive its debt-to-equity ratio down from 140.9 percent to 121.2 percent. Bolstering this financial standing, the retailer's first-half operating profit climbed to 365 billion won, up from 207.7 billion won during the same period a year earlier.
KIS does not issue ratings for Saramin.
The formation of the consortium is driven in large part by regulatory constraints. Korea’s newspaper law prohibits companies belonging to large business groups subject to cross-shareholding restrictions from owning more than a 50 percent stake in a general daily newspaper. Because Daou Kiwoom, CJ and Shinsegae all fall under this restricted category, forming the multi-party consortium serves as a legal workaround. Following the transaction, each of the two primary investor camps is expected to hold approximately 47 percent of the publication.
Summary
Korea Investors Service (KIS) says the companies buying a controlling stake in JoongAng Ilbo have the financial capacity to fund the 520 billion won deal. It sees limited credit risk for CJ and Shinsegae and a manageable, though rising, debt burden for Daou Technology, the largest investor. Daou Technology’s actual contribution of about 189.8 billion won is smaller than the 250 billion won the agency used in its scenario, which keeps its key debt ratios below downgrade thresholds. The money will go to JoongAng Ilbo to repay debt and help it exit a creditor-led workout.
This article was based on a Korea Investors Service (KIS) report and translated and edited by The Korea Times using generative AI.
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