Goldman mulls redemption option for Coupang loan, but still undecided

Goldman Sachs has begun researching its right to call in the 300 billion won ($265 million) loan it provided against Coupang Corp.'s two distribution centers since the recent devastating fire burned down one of the loan's collateralized properties, according to investment banking sources on Tuesday. But the US investment bank has made no decision yet in that regard, a source close to Goldman said.

Back in 2017, Goldman Sachs Special Situations Group (Goldman Sachs SSG) provided Coupang a five-year loan that used the inventory in its two warehouses as collateral as well. Coupang, South Korea's No. 2 e-commerce platform, has reportedly been paying an average annual interest rate of 5.5% on the loan.

Earlier this week, the Maeil Business Newspaper reported that Goldman Sachs was considering calling in the 300 billion won loan on the back of the deadly fire. To do so, Goldman was reviewing whether the fire constitutes an event of default (EOD) that gives the lender the right to demand loan repayment before the due date, and Coupang may take it as an opportunity to switch to a cheaper loan, the daily added.

Specifically, it is researching with its legal advisors whether the damage can be regarded as complete destruction by fire that qualifies for early repayment of the loan, according to the report.

On the one hand, "it was insured against damage and losses caused by a fire, and Coupang has enough money. They may have no reason to call in the loan now," one of the sources told Market Insight. On the other hand, one of two key collateral properties was destroyed by the fire.

The fire damage is estimated at several hundreds of million dollars, for which Coupang is reportedly expected to receive about 360 billion won ($320 million) in insurance money.

The Deokpyeong distribution center, the warehouse burned down by the fire, was as big as 15 soccer fields combined. The four-story facility was built on land measuring 63,241 square meters in Icheon, Gyeonggi Province, southeast of Seoul. 

The other warehouse, offered as collateral as well, was constructed on the site measuring about 40,000 square meters west of Seoul. Coupang had spent about 400 billion won in building the two distribution centers in 2016 to step up its same-day "Rocket Delivery" services.

The 300 billion won loan, which is due next year, accounts for 60% of the assessed value of the collateral at 500 billion won. Goldman Sachs SSG had divided it into a senior tranche for 200 billion won yielding 4% a year and a subordinated debt worth 100 billion won for 8.5% per annum. It sold down the senior tranche to Korean institutional investors, while holding on to the subordinated debt.

At the time, a Korean institutional investor told Market Insight that its possible investment in the sold-down debt would demonstrate its trust in Goldman Sachs, rather than its expectations for Coupang’s business or the value of the logistics centers as collateral. Market Insight is the capital news outlet of The Korea Economic Daily.

REFINANCING OPPORTUNITY?

According to the newspaper report, Goldman Sachs' call for early repayment of the loan may provide Coupang with an opportunity to switch to a cheaper loan, and a number of financial institutions are lining up to lend to the e-commerce player.

Following Coupang's spectacular New York listing that raised a more-than-expected $4.6 billion in March of this year, it may be able to refinance the loan from Goldman Sachs with favorable terms, or at an interest rate below 2% per year, the report added.

(This article's headline and first paragraph were corrected.)

Write to Jun-ho Cha at chacha@hankyung.com
Yeonhee Kim edited this article.