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South Korea’s theater chain CJ CGV is tapping the public bond market to raise 160 billion won ($135.5 million) through a perpetual bond sale amid concerns about a potential rating downgrade and market uncertainty caused by expectations of rate hikes.

CJ CGV will begin its book building process on December 1 to issue the bonds on December 8, according to industry sources. The size of the issue will be limited to 160 billion won even if the deal is oversubscribed.

Korea Investment & Securities, KB Securities, NH Investment & Securities, Samsung Securities, Shinhan Investment and SK Securities have been mandated as joint bookrunners, while IBK Securities will act as co-manager.

“CJ CGV hired underwriters as many as possible because of potentially tepid demand from investors,” an industry insider said, adding that the movie theater chain already secured letters of commitment from the securities firms.

CJ CGV’s senior unsecured bond is rated A- with a negative outlook. Local credit rating agency KIS Rating lowered the outlook to negative in April this year after the outlook downgrade by Nice Investors Service late last year. They cited the continued impact of the Covid-19 pandemic on the company’s performance and a weakened financial position despite several rounds of capital increases as the primary reason for the outlook downgrade.

Perpetual securities are normally rated one notch lower than an issuer’s senior unsecured notes, meaning CJ CGV’s proposed perpetual notes could be rated BBB+ with a negative outlook.

The possibility also cannot be ruled out that the rating could be further downgraded due to the company’s negative credit outlook, which would have a negative impact on demand for the bond issue, industry watchers said.

Moreover, expectations of rate increases are adding to bond market uncertainty. The Bank of Korea is expected to raise the policy rate by 25 bps in a monetary policy meeting slated for November 25, with some predicting another 25 bps hike early next year.

“South Korea’s primary corporate bond market has slowed down overall,” Samsung Securities analyst Kim Eun-ki said, adding that most issuers appear to postpone bond sales to next year. (Reporting by Ji-hye Lee)