Korea's corporate debt market enters wintry season amid rising interest rates

South Korean corporate debt market is rapidly losing heat amid rises in interest rates, with even the offering of investment grade issuers going undersubscribed.

Six issuers in the investment grade category of A- or higher have failed to fully sell their offering this month. The undersubscribed issues go to the underwriters.

The offer of A+ five-year papers worth 50 billion won ($42.8 million) by Korea Seven Co., Seven Eleven convenience store chain operator, pulled in 10 billion won. A five-year issue in similar amount by Pulmuone Foods drew just 12 billion won.

DTR Automotive Corp, car parts manufacturer, was able to sell just 72 percent of its 150 billion won worth A0 debt issues in two- and three-year tranches.

Investors are shying away from longer-dated debt amid rising interest rates, industry observers found. For DTR, its planned acquisition of Doosan Machine Tools could have been another damper.

Shorter-dated debts also have been receiving lukewarm response.

DoubleUGames Co., a mobile game publisher, received only 7 billion won worth orders for its 50 billion won offering of two to three year dated debts rated from A- to A0. Pharmaceutical firm HK inno.N Corp. had 10 billion won worth issues unsold for its 50 billion won offering in A- rated, two-year debts. Woori Investment Bank Co., a unit of Woori Financial Group, sought to raise 20 billion won in A0 rated, 1.5-year debts but had 5 billion won worth undersubscribed.

Tightening trend has quenched investment appetite for debts.

The yield of three-year Korean government bond was at annual high 1.891 percent by midday Monday, nearing 1.9 percent for the first time since December 2018. The AA- unsecured three-year corporate bond yield hit annual high of 2.363 percent, sharply up from yearly low of 1.137 percent in February.

The Bank of Korea has hinted at another hike next month after raising the policy rate to 0.75 percent in August from 0.5 percent, a record low kept since May last year amid Covid-19 woes.

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