Korean Inc. set to sell bonds before economic conditions worsen

[Photo by MK DB]

South Korean companies are gearing up to issue new bonds at the start of the new year as they hope to secure liquidity before the economy worsens further and overturn a debt market that has recently been showing signs of recovery on government measures.

According to multiple sources from the financial investment industry on Tuesday, many companies including Emart Inc., KT Corp., POSCO and LG Chem Ltd. are preparing to sell bonds this month as they rush to raise funds before the economy turns sour this year.

Active corporate bond sale come as Korean Inc. is hoping to leverage on a series of market stabilization measures by the government and financial authorities in December that improved overall environment. Institutional demand also tends to be high early in the year. Businesses are also hoping to secure funds before uncertainty grows ahead of the Bank of Korea’s first rate meeting this year set for Jan. 13. There is also high demand for renewed debt before maturity.

Nearly 60 trillion won ($47 billion) in corporate bonds are expected to mature this year, of which 14.7 trillion won coming due in the first quarter.

Banks and public enterprises are also gearing up to expand bond sale this year as they resumed issuance from December after a brief break to stabilize the weak bond market.

[Photo by MK DB]

According to industry data sources, Shinhan Bank issued 500 billion won in bonds in December, Woori Bank 400 billion won and KB Kookmin Bank 240 billion won.

The National Assembly also approved a bill last month to allow Korea Electric Power Corp. (KEPCO) to raise bond issuance ceiling by up to six times its equity capital and reserves and Korea Gas Corporation (KOGAS) by five times.

There are concerns rising in the market, in the meantime, about an oversupply from a sharp surge in bond sale.

“Investor sentiment in the credit market recovered as new bond issues fell, leading to reduced supply in the market,” said Lim Jae-kyun, an analyst from KB Securities. “A surge in issuance could worsen the supply and demand balance.”

Analysts also noted that a rise in public bond sale such as that of KEPCO guaranteed by the government may absorb most of the demand that would otherwise have gone to corporate bonds.

“Institutional investors so far are not that aggressive in buying bonds yet as there are risks related to property market and interest rate volatility,” said an unnamed official from an asset management firm.