Hyundai E&C, Lotte Chemical gain traction from bond investors

[Courtesy of Hyundai E&C]

South Korea’s Hyundai Engineering & Construction Co. (Hyundai E&C) and Lotte Chemical Corp. have received overwhelming bond orders from investors this week.

According to multiple sources from the investment banking industry on Wednesday, Hyundai E&C received corporate bond orders worth 355 billion won ($268.3 million), three times more than its initial offering of 120 billion won, from institutional investors during a book-building session on Monday.

The debt yield has been set at a level slightly above the average yield provided by private bond rating agencies.

When Hyundai E&C held a book-building session in February, the company received 320 billion won in bond orders, slightly up from the initial offering of 150 billion won.

The sluggish demand from institutional investors, despite its strong credit rating of AA-, came amid uncertainty surrounding the country’s property landscape.

Lotte Chemical, which held a book-building session on Tuesday, also drew an overwhelming demand of 760 billion won, five times more than the initial offering of 150 billion won.

The scene is in contrast to how Lotte Chemical garnered only 615 billion won in bond orders in February, which is less than double that of the initial offering of 350 billion won.

[Courtesy of Lotte Chemical]

Lotte Chemical is a key affiliate of Lotte Group that serves as a major revenue generator. The company is also the largest shareholder of Lotte Engineering & Construction Co. with substantial real estate project finance contingent liabilities.

The robust demand for the corporate bonds comes despite the worsened financial environment.

The yield on the U.S. Treasuries peaked at around 4 percent, the highest in 15 years, the Korean won weakened to an annual low of up to the 1,340 won level against the U.S. dollar amid the property turmoil in China.

Korea’s real estate industry remains confronted with both domestic and global real estate uncertainties.

GS Engineering & Construction Corp. has recently faced a setback when it was suspended from operations for 10 months due to the collapse of an underground parking facility at Gumdan Apartment in Incheon.

For Lotte Group’s affiliates, including Lotte Chemical, many credit rating agencies have seen additional rate downgrade as less likely but said that the affiliates have slowed in earnings improvement amid abundant pressure on their financial conditions.

“Lotte Group’s medium- to long-term earnings outlook will be determined by the degree of improvements achieved in its chemicals sector and the adept handling of its financial challenges,” said Choi Han-seung, a director of Seoul-based credit rating agency Korea Ratings Corp. “The company is expected to continue facing pressures stemming from investments in expanding its chemical operations and venturing into new areas like bio and healthcare.”