Bond trade in Korea plunges about 25% on month in Oct. due to Legoland shock

[Photo by Lee Chung-woo]

The credit crisis triggered by a default in project financing for the Legoland amusement park construction in South Korea caused trading of bonds in the country to plunge by 100 trillion won ($70 billion) in October from the previous month.

Bond transactions in October reached 334 trillion won, the lowest monthly figure since January 2009 when the global money market suffered a severe credit crunch in the aftermath of the Lehman Brothers collapse, according to the Korea Finance Investment Association. This is nearly 25 percent lower than about 400 trillion won to 500 trillion won in monthly trading before October this year.

Trading on the bond market dried up after an 205 billion won worth asset-back commercial paper issued by Legoland Korea in Gangwon Province and guaranteed by the municipal government was declared default a day before maturity on Sept. 28.

Another reason that has caused the country¡¯s bond market to freeze is KEPCO, which has raised 23.9 trillion won as of Oct. 30 this year. This compares with 11.77 trillion won that was raised via the bond market in 2021 as the company contends with ballooning losses. The company raised 5.14 trillion won in September and October alone.

The sale of KEPCO bonds at a coupon rate of as high as 6 percent created a ``blackhole¡¯¡¯ effect as other companies that are trying to raise funds are having a hard time finding investors. While the government has said it would reduce bond sales to help the bond market, KEPCO has no other choice but to continue to raise funds from the local bond market.

KEPCO will likely continue to tap the bond market for funds this year as it will need to make due payments. The company also has 630 billion won in bonds maturing this month and 400 billion won in December. An unnamed official at the energy ministry said that the state-run utility firm will continue to sell bonds as planned and the market will likely stabilize as these bonds are now guaranteed under the Bank of Korea.

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