Offerings of won-denominated bonds in South Korea rose this week after Lotte Shopping Co. priced a record 780 billion won ($687 million) of notes to fund its acquisition of home-appliance retailer Himart Co.
Lotte’s sale was the biggest on record for the department store operator, according to data compiled by Bloomberg. Samsung Techwin Co. also offered notes, driving total issuance to 980 billion won, a 27 percent increase from last week, the data show. Yields on AA- rated three-year notes, the benchmark according to the Korea Financial Investment Association, fell 10 basis points this week to 3.35 percent today, the lowest in data going back to 2000. Interest rates on AA rated U.S. debt were 2.10 percent, Bank of America Merrill Lynch data show.
South Korean corporate yields declined to a record on expectations of further easing after the central bank’s surprise interest-rate reduction on July 12. HSBC Holdings Plc and Citigroup Inc. forecast the 3 percent rate will be lowered again this year as Asia’s fourth-largest economy grew at the slowest pace in almost three years last quarter.
“Since the benchmark rate cut by the central bank, investors have been in more of a buying mode compared with about a month ago, spurred by expectations of one more potential cut,” Lim Jungmin, a credit analyst with Woori Investment & Securities Co., the biggest arranger, said Aug. 1. “Demand for corporate bonds is definitely higher now than in June.”
Offerings rose from 770 billion won last week, according to the data. No companies are planning sales next week, preliminary data compiled by Bloomberg show.
Lotte Shopping sold bonds due in 2015, 2017 and 2019, according to data compiled by Bloomberg. The company’s three-year notes were priced to yield 3.05 percent, compared with the 4.44 percent it paid on 200 billion won of securities with the same tenor in March 2010, the data show. Those securities traded at a yield of 2.87 percent yesterday, according to Korea’s NICE Pricing Service.
It’s cheaper for Lotte Shopping to finance through bond sales than bank loans, spokesman Kim Kun Soo said in an e-mailed response to questions from Bloomberg News. The retailer decided on the size and timing of the sale based on its funding needs and the current condition of financial markets, he said.
More than half the proceeds will be used to fund its 1.25 trillion won acquisition of Himart, its largest takeover in more than two years, according to a regulatory filing on Aug. 1. Seoul-based Lotte Shopping also sold 230 billion won of five-year debt priced to yield 3.32 percent, and 200 billion won of seven-year bonds at a yield of 3.43 percent, the data show.
Elsewhere in Korea’s financial markets, benchmark three-year sovereign bonds headed for a fifth weekly gain, as expectations of another reduction in the Bank of Korea’s key rate drove down yields. Policy makers meet again on Aug. 9.
The yield on South Korea’s 3.25 percent government notes due June 2015 slid two basis points, or 0.02 percentage point, to 2.77 percent as of 1:31 p.m. in Seoul, Korea Exchange Inc. prices show.
The won strengthened 0.2 percent this week to 1,135.45 against the dollar on expectations central banks globally may provide further monetary stimulus, according to data compiled by Bloomberg. The currency touched 1,125.20 on Aug. 1, the highest level since April 3.
The average yield premium on three-year corporate debt compared with government bonds held at 59 basis points today, near the lowest level this year, according to data from the financial association.
Samsung Techwin, a maker of imaging products and aircraft engines, sold 200 billion won of three-year bonds priced to yield 3.18 percent, according to data compiled by Bloomberg. The offering was its first in nine months, the data show.
The company will use the proceeds to repay 150 billion won of debt due in December, with the remainder for working capital, according to Seoul-based spokesman Jun Yong Han.
“The low rates allowed us to raise a bit more than what we needed for the debt repayment to increase our liquidity,” Jun said by telephone on Aug. 1.
Top Five Underwriter Rankings Year to Date
Company Market Share Amount in wonWoori Investment & Securities Co. 14% 4.84 trillion KB Investment & Securities Co. 13.1% 4.53 trillion Korea Investment & Securities Co. 11.9% 4.10 trillion TongYang Securities Inc. 11% 3.79 trillion Shinhan Investment Corp. 7.8% 2.70 trillion