Korea Corporate Bond Sales Stall for 2nd Week on Premiums

Sales of won-denominated corporate bonds in South Korea stalled for a second week as investors balked at the lower yields relative to sovereign notes.

Woori Finance Holdings Co. was the only issuer this week, with 250 billion won ($221 million) of five-year notes, after last week’s offerings fell to a three-month low of 200 billion won, according to data compiled by Bloomberg. The extra yield investors demand to hold corporate notes over similar-maturity government bonds rose to 60 basis points this week, three basis points from the lowest premium this year in June, data from the Korea Financial Investment Association show.

“The market is slowing due to the low bond yields,” Kim Min-Jeong, a credit analyst at KDB Daewoo Securities Co., said by telephone from Seoul on Aug. 14. “This may be good news for issuers, but for investors it’s unattractive.”

Sales also faltered this month because companies that needed financing took advantage of the Bank of Korea’s decision to cut rates in July, Kim said. Governor Kim Choong Soo surprised economists by lowering the key rate by a quarter percentage point to 3 percent on July 12, spurring a tripling in corporate bond issuance as yields fell to all-time lows.

Woori Finance, the biggest bank holding company by assets, sold the five-year notes to yield 2 basis points more than five-year AAA rated Korea composite financial debentures, according to Bloomberg data. The sale is to refinance 250 billion won of debt maturing this month, Ahn Chul Woo, a general manager with the company’s financial planning department, said last week.

Rising Yields

The issue took sales of corporate debt this year to 34.8 trillion won, compared with 34.9 trillion won in the same period last year, data compiled by Bloomberg show.

Yields on company and government debt are rising around the world as signs of recovery in the U.S. economy caused traders to reduce expectations for central-bank easing. South Korea’s three-year note yields climbed to the highest in more than a month yesterday after the jobless rate unexpectedly fell.

“Yields for both government and corporate bonds gained as improved economic data spurred investors to favor safer assets less,” Lee Soo Jung, a credit analyst with SK Securities Co., said by telephone yesterday. “The rates also seem to be technically adjusting after going excessively low.”

South Korea’s economic growth will probably slow to 2.9 percent this year, from 3.6 percent in 2011, according to the median forecast of five economists surveyed by Bloomberg.

S-Oil, SK Telecom

The yield on South Korea’s three-year benchmark government bonds increased 12 basis points this week to 2.92 percent, Korea Exchange Inc. prices show. Yields on AA- rated three-year corporate notes, the benchmark according to the Korea Financial Investment Association, rose 16 basis points to a one-month high of 3.54 percent yesterday.

Corporate debt sales are set to pick up next week to at least 1.48 trillion won, with S-Oil Corp., South Korea’s third-largest refiner, planning what would be its biggest-ever bond offering. It’s set to sell five-, seven- and ten-year notes to raise 500 billion won, according to preliminary data compiled by Bloomberg.

SK Telecom Co., the country’s largest mobile-phone operator, is also readying sales of seven-, ten- and twenty-year bonds to raise 400 billion won, the data show.

“For companies planning bond sales, the recent hike in the yields shouldn’t be too much of an issue because the level would still be lower than what they paid for the bonds that they are refinancing,” Lee said.

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. 11.7% 4.06 trillion TongYang Securities Inc. 10.9% 3.79 trillion Shinhan Investment Corp. 7.8% 2.70 trillion
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