Korean public housing developer LH’s debt issue plan may hit snag

[Photo by Park Hyung-ki]

Korea Land and Housing Corp. (LH) responsible for spearheading a massive public housing project of supplying 500,000 affordable homes faces a conundrum in financing amid rising borrowing rates and deadlocked debt market.

The yield on LH’s three-year bond recorded 5.037 percent on Nov. 17, adding 1.381 percentage points in just three months. This means that LH’s financing cost would increase by tens of millions of dollars if it sells around 5 trillion won ($3.7 billion) worth of bonds as it had on average in the previous two years.

The public housing developer must embark on a massive public housing program of supplying 500,000 homes nationwide.

It must raise funds at higher rates without upsetting the feeble debt market amid a liquidity squeeze across the board following a default in a provincial government-backed financing project for Legoland Korea theme park construction.

When LH, a public issuer of AAA-rated bonds, returns to the debt market in full force to finance the mega-housing project, it could add more woes for private companies struggling with debt issues.

Korea Housing Finance Corp. has postponed its debt issue scheduled for October and decided to minimize issues in November under the government order of restraint until the debt market normalizes.