Korean Inc.'s debt sales plunge 62% in Sept. due to high interest rate

Kim Myung-hwan and Lee Eun-joo 2022. 9. 30. 08:45
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[Source: Financial Supervisory Service]
Corporate bond issues in South Korea plunged more than 60 percent in September from a year ago, suggesting companies’ struggle with funding due to the skyrocketed interest rates following the U.S. Federal Reserves’ successive 75-basis-point rate hikes to tame inflation.

According to multiple sources from the financial authority and financial investment industry on Thursday, issues of corporate bonds between Sept. 1 and 23 plummeted 62 percent on year to 2.8 trillion won ($1.96 billion). Issues also nearly halved compared with the same period in 2020 after the onset of Covid-19.

The interest rate for three-year debt issued by a company with AA- credit reached an all-time high of 5.12 percent as of Sept. 23 and that with BBB- 11.04 percent.

As the global monetary tightening is set to accelerate following the U.S. Fed’s third successive giant step to hike its rate by 0.75 percentage point, Korean companies are expected to remain reluctant to sell debts to raise funds, which could lead to cash drought.

According to data released by Financial Supervisory Service on Thursday, corporate bond issues amounted to 20.5 trillion won in August, down 0.4 percent from a month ago. Issues of financial notes rose while those of general corporate bonds fell.

Issues of general corporate bonds amounted to 1.3 trillion won in August, down 59.3 percent from a month ago. With less maturing debts in August, companies were not in hurry to sell debts to repay. Issues to finance operation funds also declined.

Bonds rated AA or higher made up 88 percent of total issues.

Stock issues in August also fell 47 percent on month to 372.3 billion won. Initial public offerings (IPOs) plunged 66.8 percent on month to 181.2 billion won. New share issues to increase capital, on the other hand, rose 33.1 billion won on month to 191.1 billion won in August.

Commercial paper issues and short-term debentures totaled 117.6 trillion won in August, down 11.2 percent from July.

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