S. Korean firms rush to issue corporate bonds amid record-low interest rates

South Korean companies are flocking to the corporate bond market to take the opportunity of cheaper borrowing costs from the record-low interest rates.

According to Financial Supervisory Service on Sunday, a total of five companies – SK Securities Co., broadcaster JTBC, LPG distributor E1 Corp., motor vehicle parts maker Hyundai Kefico Corp., and Ssangyong Cement Industry Co. - are scheduled to tap into demand for corporate bond issues with debts ranging from 30 billion won ($24.7 million) to 150 billion won, just in the first week of September.

In July, companies in Korea raised a total of 16.5 trillion won through bond issues, according to data released by the financial regulator late August. The amount was up 17 percent from the same month last year and 2 trillion won more than from the previous month. The jump was notable as the debt market is usually lackluster in July for the summer break season and after the first-half year settlements.

Worsening economic conditions from a protracted trade war between the U.S. and China have raised expectations for more policy rate cuts to come from major economies. This has led to a fall in market rates, allowing companies to issue debts at cheaper costs while they seek to secure additional ammunitions to weather the tough times ahead.

SK Lubricants Co. last month raised 100 billion won after issuing three-year corporate bonds at a coupon rate of 1.384 percent, the lowest ever for private firms in Korea. With market rates at the historic low level, experts anticipate local firms to rush with their bond issues this month and onward.

But market experts remain cautious about whether companies would successfully raise funds through debt sales at a time when investors are turning more conservative about bonds due to the continued downward spiral in market rates without any sign of immediate recovery, as well as growing concerns over possible losses in derivatives-linked securities. Some companies already have experienced demand for long-dated corporate bonds far exceeding that for shorter-term commercial papers, increasing burned on them.

An investment bank industry official said ¡°many companies that could have drawn trillions of won of funds during book building have settled for a lot smaller amount recently,¡± adding that it remains to be seen how much longer the companies would be able to raise funds under favorable terms.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]