Korea Corporate Bond Sales Fall 73% as Interest Rates on Hold

Sales of won-denominated bonds by South Korean companies declined 73 percent this week as the central bank unexpectedly left interest rates unchanged.

Issuance decreased to 400 billion won ($356 million) from 1.5 trillion won last week, according to data compiled by Bloomberg. Three-year AA- rated corporate note yields, the benchmark according to the Korea Financial Investment Association, rose four basis points to 3.36 percent this week, up from a record-low 3.24 percent on Sept. 5. Yields on AA rated U.S. corporate securities increased two basis points to 2.13 percent, Bank of America Merrill Lynch indexes show.

“Some issuers prefer to avoid days near rate-decision in selling bonds due to rising uncertainties,” said Kim Ki Myung, a Seoul-based credit analyst at Korea Investment & Securities Co. “Still, I expect issuance to continue to rise as the current yield level is near historical lows, allowing companies to borrow for a longer term at cheaper costs.”

The Bank of Korea’s decision to leave the key interest rate at 3 percent yesterday was forecast by only one of 16 economists surveyed by Bloomberg News. The rest expected a 25 basis-point cut to 2.75 percent. Only four companies sold bonds this week, compared with a weekly average this year of about eight, according to data compiled by Bloomberg.

Samsung SDI, Dongwon

Samsung SDI Co., a maker of lithium-ion batteries, led issuance with 200 billion won of three-year notes priced to yield 3.19 percent, Bloomberg-compiled data show. The Gyeonggi-based company last sold debt in 2009. Those securities are due to mature Sept. 16 and were priced to yield 5.47 percent, the data show.

“The bond sale was planned to refinance debt that comes due this month,” Kim Sang Eun, a Seoul-based spokesman at Samsung SDI, said in a telephone interview on Sept. 12. “We were able to lower borrowing costs this time because government bond yields have fallen.”

Dongwon Enterprise Co., the owner of South Korea’s biggest canned-tuna company, raised 100 billion won selling three-year notes to yield 3.39 percent, according to Bloomberg-compiled data. The company sold 50 billion won of similar maturity notes in January yielding 4.36 percent, the data show.

The Bank of Korea said in a statement after the rate decision that the nation’s growth momentum appears to be slackening. South Korea’s gross domestic product rose 2.3 percent in the second quarter from a year earlier, the slowest pace in almost three years. Exports fell 6.2 percent in August, the sixth monthly decline this year.

Won Appreciates

South Korea will add 4.6 trillion won of stimulus measures this year, without expansion of the government’s budget, and 1.3 trillion won for 2013, the Finance Ministry said on Sept. 10. The measures include extra spending and tax cuts intended to boost the housing market and car sales, the ministry said in an e-mailed statement.

Korea’s currency rose to the strongest level in six months today after the U.S. Federal Reserve announced a third round of asset purchases that will boost the supply of dollars. The won appreciated 1 percent to 1,117.30 per dollar at the close in Seoul, the strongest level since March 12, boosting the week’s advance to 1.2 percent.

“With the benchmark rate on hold and the Federal Reserve’s quantitative easing raising bond yields, companies may take a wait-and-see stance for the short term until they become sure of bond market directions,” Lee Jong Myung, a Seoul-based credit analyst for Hanwha Securities Co., said in a telephone interview today.

SK Energy, E-Mart

The yield on the government’s 3.25 percent bonds due June 2015 fell two basis points to 2.86 percent, Korea Exchange Inc. prices show. The rate rose four basis points this week.

SK Energy Co., Hanjin Transportation Co. and E-Mart Co. are among companies planning bond sales in the coming week, according to preliminary data compiled by Bloomberg.

“The proceeds will be used to refinance 180 billion won of debt maturing in October, and also for business operations,” Yoo Jung Min, spokesman for SK Innovation Co., SK Energy Co.’s parent company, said on Sept. 12 in a telephone interview.

Top Five Underwriter Rankings Year to Date

Company Market Share Amount in won

Woori Investment & Securities Co. 15.3% 5.96 trillion KB Investment & Securities Co. 12.7% 4.95 trillion Korea Investment & Securities Co. 12.4% 4.83 trillion TongYang Securities Inc. 10.6% 4.12 trillion Shinhan Investment Corp. 7.7% 2.99 trillion
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