LG Electronics Inc.’s first won-denominated note sale in a year helped corporate bond offerings in the currency rise almost fivefold this week as a slowing South Korean economy pushed yields to historic lows.
Issuance increased to 1.36 trillion won ($1.2 billion) from 280 billion won last week, data compiled by Bloomberg shows. Yields on three-year AA-rated corporate notes fell to 3.24 percent on Sept. 5, the least since the Korean Financial Investment Association started compiling data in 1993. Similarly rated U.S. corporate securities yielded 2.13 percent yesterday, according to Bank of America Merrill Lynch indexes.
LG, the world’s No. 4 mobile-phone maker, took advantage of plunging yields by increasing the size of its offering 50 percent to 300 billion won, the data show. Asia’s fourth-largest economy failed to meet the central bank’s growth estimates, according to a report yesterday from the Bank of Korea, which meets to decide interest rates next week. Yields on the nation’s corporate debt generally fall as government yields drop.
“Companies are able to borrow for a longer term and at cheaper costs now,” said Kim Ki Myung, a credit analyst with Korea Investment & Securities Co., the third-largest arranger of bonds this year. “Even if the Bank of Korea doesn’t change the base rate next week, though that’s unlikely in our view, we should see more and more offerings as borrowers want to secure adequate liquidity amid a slumping economy.”
Korea Southern Power Co. and Uamco Ltd. also sold 300 billion won of debt securities each this week, the data show.
LG initially planned to offer 120 billion won of three-year notes, and 80 billion won of five-year securities, according to an Aug. 29 regulatory filing. The Seoul-based company increased the sale by 50 billion won for each maturity, pricing the three-year debt to yield 3.1 percent and the five-year bonds to yield 3.19 percent, data compiled by Bloomberg show.
“We felt the timing was right for this particular action,” Ken Hong, a Seoul-based spokesman for LG, said by phone, declining to comment further on why the company raised the offering.
The yield on Korea’s sovereign 3.25 percent bond due June 2015 increased five basis points this week to close at 2.82 percent in Seoul, according to prices from Korea Exchange Inc. A basis point is 0.01 percentage point.
The won strengthened 0.4 percent this week to 1,130.40 per dollar, according to data compiled by Bloomberg.
Korea’s economy grew 0.3 percent in the second quarter from the previous three-month period, compared with an initial estimate of 0.4 percent, the central bank report said. Goldman Sachs Group Inc. lowered its forecasts for gross domestic product expansion to 2.6 percent from 3.0 percent for 2012, and to 3.5 percent from 3.8 percent for 2013 yesterday.
The yield premium investors demand to own three-year corporate notes over similar-maturity treasury bonds tightened one basis point to 50 basis points last week, the narrowest in almost five years, and has remained at that level since then, data from the financial investment association show.
“I see little movement in corporate spreads as bond investors will wait and see rather than being active ahead the rate decision,” Hwang Won Ha, a credit analyst with HMC Investment Securities Co., said in a telephone interview from Seoul on Sept. 5. “A rate cut next week will raise expectations for further reductions, which will push down treasury yields, and spreads, in turn, may narrow.”
Korea Southern, Uamco
All 12 economists surveyed by Bloomberg News expected Governor Kim Choong So to reduce the benchmark interest rate to 2.75 percent on Sept. 13.
Of the corporate bond sales this week, Uamco, South Korea’s biggest buyer of bad debts from banks, priced 300 billion won of notes due 2014 to yield 3.05 percent, according to data compiled by Bloomberg.
Korea Southern Power sold 100 billion won of seven-year bonds at a yield of 28 basis points more than similar-maturity government debt, the data show. The power-generating unit of Korea Electric Power Corp. also issued 90 billion won of ten-year notes at a 17 basis-point premium and 110 billion won of 15-year securities at a spread of 25 basis points, the data show.
Next week, Samsung SDI Co., a lithium battery maker, plans a 200 billion won offering of three-year securities, according to preliminary data compiled by Bloomberg. The sale would be Samsung SDI’s first in almost three years, the data show.
South Korean companies have borrowed 38.5 trillion won selling bonds this year, compared with 37.3 trillion won the same period of 2011, the data show. LG’s issue was its first in won since September 2011.
“As borrowing costs keep sliding we’ve been seeing a steady inflow of new issuance from companies that haven’t tapped the market for a while,” HMC’s Hwang said.
Top Five Underwriter Rankings Year to Date
Company Market Share Amount in wonWoori Investment & Securities Co. 15.5% 5.96 trillion KB Investment & Securities Co. 12.9% 4.95 trillion Korea Investment & Securities Co. 11.8% 4.53 trillion TongYang Securities Inc. 10.6% 4.08 trillion Shinhan Investment Corp. 7.5% 2.90 trillion