Korean Corporate Bond Sales Fall on Rate-Cut Expectations

Korean Corporate Bond Sales Fall 21% on Rate-Cut Expectations
A 780 billion won offering by Lotte Shopping Co., South Korea’s largest department store operator, and a 500 billion won sale by S-Oil Corp. made up 39 percent of total issuance. Photographer: SeongJoon Cho/Bloomberg

Sales of won-denominated bonds by South Korean companies declined to the lowest since May this month amid speculation issuers are waiting for the central bank to cut interest rates again.

Offerings fell 21 percent to 3.31 trillion won ($2.92 billion) from the previous month, and were below the 12-month average of 4.78 trillion won, according to data compiled by Bloomberg. Three-year AA- rated corporate yields, the benchmark according to the Korea Financial Investment Association, dropped 17 basis points this month to 3.27 percent today in Seoul, the least in data going back to 1993. Similarly rated U.S. corporate debt rose one basis point to 2.11 percent, Bank of America Merrill Lynch indexes show.

Bank of Korea governor Kim Choong Soo will probably lower interest rates when policy makers meet on Sept. 13, according to ING Groep NV and Standard Chartered Plc, as manufacturing confidence stayed near the lowest level since the global financial crisis. About 80 percent of issuance last month came after the central bank’s surprise rate cut on July 12.

“Sales are down this month because borrowers stayed on the sidelines to gauge on BOK’s direction next month,” Jason Lee, a senior credit analyst at KB Investment & Securities Co. in Seoul, said in a telephone interview on Aug. 29. “The possibility of another rate cut may further drive down borrowing costs, and that should boost offerings next month.”

Corporate bond yields declined 33 basis points since the July rate cut through the end of last month.

Lotte, S-Oil

Only 14 companies came to market this month, compared with 30 in all of July, the data show. A 780 billion won offering by Lotte Shopping Co., South Korea’s largest department store operator, and a 500 billion won sale by S-Oil Corp. made up 39 percent of total issuance.

The cost for raising money from bonds is cheaper than getting bank loans, Kim Kun Soo, a spokesman for Seoul-based Lotte said in an e-mailed response to questions from Bloomberg News on Aug. 2. Corporate borrowers pay an average of 5.53 percent for bank loans as of July, the latest figures available, according to data compiled by the Bank of Korea.

The yield premium on the three-year, AA- corporate debt relative to comparable government bonds narrowed to 51 basis points today, matching the lowest since 2007 reached on Aug. 29, data from the association show.

Woori Investment & Securities Co. was the biggest underwriter this month, arranging 21 percent of sales, according to the data. The Seoul-based company was also the largest arranger this year, the data show.

Government Bonds

Companies also sold 11 percent fewer bonds than the same month a year earlier, according to the data. August is “seasonally a slow month,” because many market participants are on summer vacation, said Byun Jeong Hye, a credit analyst with Seoul-based Shinhan Investment Corp.

Elsewhere in the markets, yields on South Korea’s 3.25 percent bonds due in June 2015 decreased two basis points to 2.77 percent today, Korea Exchange Inc. prices show. Three-year yields rounded out a fifth monthly decline.

The won, little changed today at 1,134.63 against the dollar, weakened 0.4 percent in August and is poised for the first monthly loss since May.

Samsung Heavy Industries Co., the world’s second-biggest shipbuilder, is planning to offer 500 billion won of bonds next month, the Seoul-based company said in an e-mailed response to questions from Bloomberg News on Aug. 22, without giving further details. Korea Ratings Corp., one of the country’s three credit assessment companies, gives Samsung Heavy a fourth-biggest AA- grade.

‘Solid’ Companies

“Companies may hold offerings until next month because another cut is expected,” Shinhan Investment’s Byun said by telephone on Aug. 29. “But with solid credit companies like Samsung Heavy expected to tap the market, sales will rebound.”

Next week, LG Electronics Inc., Asia’s second-biggest mobile-phone maker, is planning a sale of three-year and five-year bonds to raise 200 billion won, according to preliminary data compiled by Bloomberg. Korea Southern Power Co. is also readying a 300 billion won offering of notes with three different maturities, the data show.

Borrowers raised 37.1 trillion won from bond sales so far this year, compared with 37.04 trillion won in the same period last year, according to data compiled by Bloomberg.

Top Five Underwriter Rankings Year to Date

Company Market Share Amount in won

Woori Investment & Securities Co. 14.9% 5.54 trillion KB Investment & Securities Co. 13.0% 4.81 trillion Korea Investment & Securities Co. 11.9% 4.41 trillion TongYang Securities Inc. 10.2% 3.79 trillion Shinhan Investment Corp. 7.8% 2.90 trillion
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