Sales of won-denominated bonds more than tripled this week as South Korean shipbuilders took advantage of record-low yields to raise funds amid slumping new orders and overseas deliveries.
Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co., which own two of the world’s three biggest shipyards, led issuance to 1.77 trillion won ($1.55 billion) from 560 billion won last week, according to data compiled by Bloomberg. Benchmark three-year corporate bond yields declined to 3.48 percent on July 18, the lowest since at least 1993, according to the Korea Financial Investment Association.
“With a gloomy outlook for the shipbuilding industry, companies are dipping into the bond market to raise cash,” Lee Soo Jung, a credit analyst with SK Securities, said by telephone from Seoul on June 18. “At the same time, the market is conducive to borrowers with yields plummeting.”
Hyundai Heavy sold a record 700 billion won of securities as shipbuilders, which account for about 10 percent of total exports from Asia’s fourth-biggest economy, seek to boost capital through debt sales. South Korea’s central bank last week cut its outlook for 2012 growth, citing a protracted crisis in Europe for reducing the estimate to 3 percent from 3.5 percent.
Borrowers are planning at least 720 billion won of sales next week, with Doosan Infracore Co., and Korea South-East Power Corp. poised to price notes, according to preliminary data compiled by Bloomberg.
Yields on AA- rated three-year securities dropped four basis points this week, investment association prices show. Comparable U.S. corporate debt pays 2.16 percent, down nine basis points this week, according to Bank of America Merrill Lynch indexes.
The yield on South Korea’s 3.25 percent bonds due June 2015 rose 1 basis point to 2.9 percent as of 3:25 p.m. in Seoul, Korea Exchange Inc. prices show. Yields declined 5 basis points on the week, the third weekly decline. The won weakened 0.18 percent to 1,141.20 per dollar, after five days of gains, according to data compiled by Bloomberg.
Export-Import Bank of Korea, the nation’s largest seller of foreign-currency debt, offered a record A$500 million ($520 million) of Kangaroo bonds by a South Korean issuer on July 18. The notes were priced to yield 275.25 basis points more than benchmark Australian government bonds, according to data compiled by Bloomberg.
The bank also sold 1.75 billion yuan ($275 million) of yuan-denominated notes in Hong Kong the same day, priced to yield 3.25 percent, the data show.
South Korean companies may post their first annual drop in overseas shipments in 19 years, the Ministry of Knowledge Economy said this month. Shipbuilding orders fell 50 percent in the first five months from the same period a year earlier, according to data from Clarkson Plc, the world’s largest shipbroker.
Cash and near-cash items for Hyundai Heavy, the world’s biggest shipbuilder, are down about 17 percent in the first quarter from a year earlier, while total liabilities increased more than 28 percent, according to data compiled by Bloomberg. The company sold a 705 billion won stake in Hyundai Motor Co. this week after one of its units dropped a plan to sell shares.
“Shipbuilders need cash now because they collect their bills after deliveries are made,” Kim Ki Myung, a credit analyst with Seoul-based Korea Investment & Securities Co., said by telephone on July 18.
Hyundai Heavy, based in the south-eastern coastal city of Ulsan, sold 300 billion won of three-year bonds to yield 3.41 percent, and 400 billion won of five-year securities priced the yield 3.52 percent, according to data compiled by Bloomberg.
Hyundai Oilbank Co., a unit of Hyundai Heavy, shelved an initial public offering plan last month, citing worsening economic conditions. South Korea’s fourth-largest refiner planned to raise as much as 2 trillion won from the IPO, MoneyToday reported on April 13, citing unidentified sale arrangers.
Daewoo Shipbuilding’s 200 billion won of three-year notes were priced to yield 3.58 percent and 300 billion won of five-year debt were sold to yield 3.8 percent, the data show.
Doosan Infracore is leading issuance slated for next week with sales of three- and five-year notes to raise 300 billion won, according to preliminary data compiled by Bloomberg. Korea’s largest construction-equipment maker is also considering selling U.S. dollar-denominated perpetual hybrid bonds, it said in an e-mailed response to questions from Bloomberg News last month. Korea South-East Power Co. is also planning a sale of 200 billion won of notes, the data show.
“Issuance will keep coming, as firms want to preemptively raise funds and avoid future uncertainty,” Kim at Korea Investment & Securities said.
Top Five Underwriter Rankings Year to Date
Company Market Share Amount in wonWoori Investment & Securities Co. 14.7% 4.78 trillion KB Investment & Securities Co. 12.7% 4.15 trillion TongYang Securities Inc. 11.6% 3.79 trillion Korea Investment & Securities Co. 11.6% 3.78 trillion Shinhan Investment Corp. 7.6% 2.49 trillion