Yahoo Finance Korea Bond Sales Surge to Record After SK Hynix, Aerospace Deals
(Bloomberg) -- South Korean companies are selling local-currency corporate bonds at a record pace this year, as investors lock in yields before expected rate cuts and authorities win some confidence in their handling of property sector strains.
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Issuance of the debt securities by Korean companies jumped 28% to a record 31 trillion won ($22.9 billion) so far this year, out-pacing previous comparable periods, according to data compiled by Bloomberg. Firms including SK Hynix Inc. and Korea Aerospace Industries increased the size of bond deals earlier this month after strong demand from investors.
Economists predict the Bank of Korea will cut its key rate by 50 basis points in 2024, a recent Bloomberg survey shows, although the central bank has been careful to avoid telegraphing an early policy pivot so far. It was one of the first major central banks to raise interest rates in 2021, lifting its benchmark rate to a 15-year high of 3.5% that’s heaped pressure on highly-leveraged companies.
Investor sentiment has also been helped by an expansion in Korean exports and industrial production. Meanwhile, despite lingering real estate risks after recent credit woes at distressed builder Taeyoung Engineering & Construction Co, some investor reassurance has come after officials rolled out additional liquidity measures in an attempt to support the property market.
“Nothing has improved in terms of real estate market conditions but uncertainties eased with officials pro-actively responding to a potential credit crunch,” said Jeong Hyeong-ju, credit analyst at KB Securities Co., the top arranger for local debt sales in the first quarter.
In a sign of investor confidence, yield premiums on won corporate notes tightened this month to the lowest since early 2022, and are well below a high reached later that year after a default by the developer of a Legoland amusement park.
Companies also had an incentive in the first quarter to bring bond deals before April 10 parliamentary elections to avoid uncertainties. But the issuance frenzy is expected to continue even after the election.
“There still seems to be room for spreads to tighten further given strong investor demand,” said Joo Tae-young, a senior managing director who heads an investment banking division at KB Securities. “The positive sentiment will continue into the second quarter.”
This year could mark a record for issuance as long as there isn’t any major credit event, Joo added.
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