South Korean companies return to debt market amid signs of recovery

[Photo by MK DB]

South Korean companies are returning to the debt market on signs of a turnaround in demand, but experts still remain cautious about the capital market recovery.

According to investment banking sources on Tuesday, LG Uplus plans to raise 15 billion won ($116.5 million) worth bonds rated AA in two-, three- and five-year maturities on Jan. 13 after a book-building session on Jan. 6. It tapped institutional demand for its 150 billion won offering in October but only raised 100 billion won.

Earlier, POSCO announced its plan to offer 700 billion won worth bonds rated AA+ on Jan. 12 with a book-building session on Jan. 4.

Companies are returning to the debt market as they failed to raise fund as planned in the fourth quarter and the market started showing signs of a recovery.

The borrowing rates in commercial papers (CPs) in Korea have recently shown signs of stabilization after uninterrupted gains since September. Yields on 91-day A1 rated CPs continued to fall by 1-3 basis points for seven consecutive trading sessions but still remained at their highest levels at mid-5 percent.

Companies also initiated preparation for financing to raise the issuance volume.

This month alone, Korea Electric Power Corp. (KEPCO) raised the ceiling to 21.17 trillion won from 12.4 trillion won, CJ Logistics Corp. to 1.42 trillion won from 920 billion won, Hyundai Rotem Co. to 1.15 trillion won from 645.2 billion won, and Sangsangin Investment & Securities Co. to 1.25 trillion won from 290 billion won.

Still, some say it is uncertain whether their financing will go well.

“The current squeeze will be eased with more seeking debt issuance from early next year, but there’re variables as well with risk in the real estate financing market,” said Kim Ki-myeong, an analyst at Korea Investment & Securities.

“Investors will favor debts with higher ratings and thus the polarization will likely be deeper. Financing conditions will vary significantly according to the financial soundness of companies, business prospects, and support programs,” said Lee Hwa-jin, an analyst at Hyundai Motor Securities.