Korea Bond Sales Fall to 3-Month Low as Central Bank Holds Rates
Only Cheil Industries Inc. sold debt with 200 billion won ($177 million) of three- and five-year notes, after 980 billion won of issuance last week when Lotte Shopping Co. offered a record 780 billion won of securities, according to data compiled by Bloomberg. The Bank of Korea kept its key interest rate at 3 percent yesterday as it gauges the impact of Europe’s fiscal crisis on Asia’s fourth-largest economy.
“Companies usually refrain from selling bonds near the central bank’s monetary policy decision as the rate may be cut and companies want to avoid uncertainties,” said Park Cheongho, chief credit analyst in Seoul at Dongbu Securities Co.
Bank of Korea Governor Kim Choong Soo surprised economists last month by reducing rates, triggering a tripling in corporate bond sales as yields fell to all-time lows. Woori Finance Holdings Co., the nation’s biggest financial group by assets, plans a bond sale as soon as next week, data compiled by Bloomberg show.
Three-year AA- rated corporate yields, the benchmark for company borrowing costs according to the Korea Financial Investment Association, rose three basis points, or 0.03 percentage point, to 3.38 percent this week.
Borrowing costs touched 3.35 percent on Aug. 8, the least in data going back to 2000. Yields on U.S. corporate debt with an AA ranking increased three basis points to 2.19 percent this week, Bank of America Merrill Lynch index data show.
The yield on South Korea’s three-year benchmark government bonds climbed three basis points this week to 2.80 percent, posting its the first weekly increase since June, Korea Exchange Inc. prices show. The BOK’s decision was forecast by 10 of 16 economists surveyed by Bloomberg News, with the remaining six expecting a reduction.
Risks to South Korea’s economy are larger than the potential upside as Europe’s slump deepens, policy makers said in a statement released after the decision. The rate pause raises the possibility of a cut next month, according to Sun Yoo, an economist at Woori Investment & Securities Co. in Seoul.
The won strengthened 0.4 percent this week to 1,130.45 per dollar, finishing a fourth weekly gain, according to data compiled by Bloomberg. The currency strengthened to a four-month high on Aug. 6 as data showed employment in the U.S. exceeded forecasts in July.
Cheil Industries, an apparel and chemical-products maker, priced 100 billion won of notes maturing in August 2015 to yield 3.06 percent, data compiled by Bloomberg show. The borrower also sold the same amount of August 2017 securities at a yield of 3.19 percent.
The company last sold debt in February and now has 960 billion won of bonds outstanding, the data show. Its 100 billion won of 3.95 percent three-year notes issued in February traded at a yield of 3.12 percent yesterday, according to NICE Pricing Service. Cheil Industries is ranked a third-highest AA by South Korea’s three ratings companies.
“We planned the bond issuance as financial market conditions including yield levels were favorable, and there’s a risk of Europe’s debt crisis deteriorating in the second half,” said Lee Tae Hun, a Seoul-based senior manager at the corporate communications team at Cheil Industries. “The proceeds will be used for investment in our chemical and electronic materials business,” he said.
Woori Finance (053000) is planning a 250 billion won bond sale, the preliminary data show. The offering is to refinance 250 billion won of debt maturing at the end of the month, according to Ahn Chul Woo, a general manager in the financial planning department. The company’s 250 billion won of notes due on Aug. 30 pay a coupon of 5.79 percent, according to data compiled by Bloomberg.
South Korean companies have sold 34.8 trillion won of bonds this year, compared with 33.6 trillion won in the same period last year, the data show.
Top Five Underwriter Rankings Year to Date Company Market Share Amount in won Woori Investment & Securities Co. 14.5% 5.04 trillion KB Investment & Securities Co. 13.0% 4.53 trillion Korea Investment & Securities Co. 11.8% 4.10 trillion TongYang Securities Inc. 10.9% 3.79 trillion Shinhan Investment Corp. 7.8% 2.70 trillion
-- Editors: Beth Thomas, Sarah McDonald
To contact the reporter on this story: Jiyeun Lee in Seoul at email@example.com