Korean companies show mixed results in corporate bond demand

SK ecoplant Co. headquarters [Courtesy of SK ecoplant]

The South Korean corporate bond market is witnessing inconsistency between the demand forecast for corporate bond issuances and credit ratings, likely due to each company’s different capabilities to respond to challenging external conditions such as high-interest rates and uncertainties.

According to financial investment industry sources on Sunday, there has been a mixed response among companies within the same industry regarding their demand forecast for corporate bond issuances.

One of the most notable industries showing inconsistency between the demand and the credit ratings is the construction industry.

SK ecoplant Co., an SK Group affiliate with a rating of A-, achieved favorable results in demand forecasting for corporate bond issuances twice this year.

At both forecasts for a 100 billion won ($77.8 million) issuance in mid-February and on Thursday, the company received bids of 508 billion won and 435 billion won, respectively, reaching about five times the planned amount.

The company issued 200 billion won, the maximum amount, in February and is likely to do the same this month.

On the other hand, during the same period in mid-February, construction companies with a higher credit rating, such as Hyundai Engineering & Construction Co. with AA- and GS Engineering & Construction Corp. with A+, only received bids at approximately twice the planned amount.

While both Hyundai E&C and GS E&C planned to issue 150 billion won each, they received bids of 320 billion won and 219 billion won, respectively.

Analysts note that this may be because institutional investors evaluated SK ecoplant’s effort highly as the company has steadily increased the share of its new businesses in their portfolio, such as in environment and energy, while striving to shed the image of a construction company.

“The downward pressure among the credit ratings of the companies in the construction industry remains high,” said Jeon Ji-hoon, senior analyst at Korea Investors Service Inc. “Differences in each company’s response capabilities will be increasingly highlighted amid the overall uncertainty.”

Some companies have succeeded in financing despite their credit ratings at non-investment-grade.

Last week, Doosan Co. with a rating of BBB received bids of 93 billion won for its 30 billion won bookbuilding session. Last month, Doosan Fuel Cell Co. with a rating of BBB received bids of 88 billion won for its 40 billion won financing.

At the end of June, Hanjin Transportation Co. with a rating of BBB+ conducted a 40 billion won demand forecast, and it received bids of 261 billion won.

Inconsistency is also evident among companies’ credit ratings, with different ratings in the regular first half-year evaluation from the three major domestic credit rating agencies - Korea Investors Service Inc., Korea Ratings, and NICE Investors Service Co. - that usually give similar ratings.

According to Hana Securities Co., the ratio by dividing the number of companies with their ratings up by the number of companies with their ratings down in the first half of this year was 0.4 at Korea Investors Service, 1.09 at Korea Ratings, and 1.56 at NICE.

A ratio greater than 1 indicates that there have been more companies with their ratings up than companies with their ratings downgraded. Based on the ratio, Korea Investors Service evaluated companies’ credit ratings the most negatively, while NICE was the most positive among them.