Capital inflow surges in Korea’s corporate debt market

[Photo by MK DB]

South Korea’s corporate debt market is heating up as investors are rushing to snap up corporate bond sales amid signs of a recovery helped by government measures.

Steel giant POSCO is expected to increase its bond sale of 350 billion won ($275.7 million) after it attracted 3.97 trillion won from investors in its book-building ahead of the sale, according to sources in the investment bank industry. The company planned to issue bonds worth 350 billion won, including two-year bonds worth 50 billion won and three-year bonds worth 200 billion won. KT Corp. and Emart Inc. have also attracted 2.9 trillion won and 1.2 trillion won, respectively, in their book-building ahead of their bond sales.

While there are signs of recovery in the debt market, the trend is only seen for companies with high credit ratings. Many experts said that the recent successful bond issuance has been driven by institutional investors that usually rush to buy corporate bonds at the beginning of a year amid stable market conditions.

“Demand leads supply in the corporate bond market, and if demand is stable, a supply expansion wouldn’t be overwhelming,” Kim Eun-ki, an analyst at Samsung Securities Co. said. “There will be demand because corporate bond rates look attractive and about 5 trillion won from the bond stabilization fund later this.”

However, the effects of such a positive trend are not expected to spill over to bonds with lower credit ratings, as most corporate bonds to be issued by the middle of this month are high-rated companies. “Recovery paces for corporate bonds varied depending on credit ratings,” Kim said. “Weakening sales driven by economic downturns and real estate project financing risks, which threaten to lower the credit rating of construction firms, may serve as a downward factor for the demand for corporate bonds.”

With the commercial paper rates remaining in a downward trend, certificate of deposit rates closed down 5 basis points to 5.06 percent Thursday.