South Korea will provide as much as 6.4 trillion won ($5.6 billion) of refinancing support for the nation’s corporate bond market as yields surge to the highest in more than 10 months and debt offerings dwindle.
The nation will issue so-called primary-collateralized bond obligations to provide more liquidity in the market, the Financial Services Commission said in an e-mailed statement. The securities will be backed by an 850 billion won guarantee using funding from the government and central bank, it said.
Benchmark yields for three-year AA-rated corporate notes surged 10 basis points to 3.51 percent today, the highest since Aug. 20, according to data from the Korea Financial Investment Association. The interest rates climbed from a record-low 2.80 percent reached in March as the U.S. Federal Reserve signaled plans to dial back record stimulus, spurring a rout across global bond markets.
“This is a preemptive measure in a bid to prevent a possible bond market crisis that may occur when the U.S. reduces liquidity and other countries see more economic and financial market volatility,” Jeong Chan Woo, FSC vice chairman, told reporters in Seoul today.
The aid package seeks to bolster funding for companies facing a financing squeeze as growth in Asia’s fourth-biggest economy slows. Industries including construction, shipbuilding and shipping suffered liquidity problems this year, with investors wanting to redeem debt outnumbering those willing to buy it, according to the FSC.
“The amount the government is offering seems to be enough to help the issuers with riskier bonds that may mature at the end of this year, and support struggling sectors,” said Park Cheong Ho, a credit analyst at Dongbu Securities Co. in Seoul.
The collateralized securities will be backed by 150 billion won of funding from the Korea Credit Guarantee Fund and 350 billion won each from the government and Korea Finance Corp., which will receive cheap loans from the Bank of Korea.
South Korea spent 5 trillion won helping businesses fund themselves in the wake of the 2008 collapse of Lehman Brothers Holdings Inc., as officials sought to protect the nation from a global recession.
Korean companies raised 120 billion won selling notes last week, with offerings slumping from an average 713 billion won each week in the first three months of 2013, data compiled by Bloomberg show.