Korean securities firms rush to issue CPs to benefit from govt aid program

[Provided by Maekyung Media Group]

Despite government-led rescue program, the South Korean bond market remains volatile with the yield on 91-day commercial paper (CP) surging to the highest level in nearly 14 years as financial institutions have been rushing to seek short-term financing to benefit from buyout program.

The 91-day CP rate closed at 4.98 percent on Tuesday, hitting the highest level since the Jan. 15, 2009.

CP yields have been rising as financial institutions turned to short-term financing due to near-dead demand for longer debt after a missed bond payment by municipal-tied developer of Legoland Korea theme park. Longer-dated issues by securities companies have been shunned as they have massive exposure to construction project financing.

Despite higher cost, securities firms continue to issue CPs and short-term debentures to secure liquidity to highlight their urgency. They have upped sales after Korean financial authorities unveiled an liquidity aid package over 50 trillion won ($35 billion) that includes purchase of short-term corporate issues, said Kim Sang-hoon, an analyst at Shinhan Securities.

Kyobo Securities issued 1.67 trillion won worth of short-term debentures in October, eight times greater than the previous month. Meritz Securities also sharply upped its sale of short-term debentures to 590.4 billion won in October from 100 billion won in September.

Last week, 21 securities firms issued 5.07 trillion won worth of CPs and short-term debts in total. Korea Investment & Securities issued 770 billion won, Kyoto Securities 720 billion won, Kiwoom Securities 629 billion won, Shinhan Securities 561 billion won, and Mirae Asset Securities 440 billion won.

By Kim Myung-hwan, Cha Chang-hee, Cho Yoon-hee, and Cho Jeehyun