South Korean companies almost tripled won-denominated bond sales this week to the most since July, bolstering cash amid signs of slowing economic growth.
Samsung Heavy Industries Co., the world’s second-biggest shipbuilder, and discount chain store E-Mart Co. led 1.92 trillion won ($1.7 billion) of issuance, up from 650 billion won last week, according to data compiled by Bloomberg. It was the busiest period since the week beginning July 16, the data show.
Asia’s fourth-largest economy will expand 3 percent this year, down from a June forecast of 3.25 percent, according to the International Monetary Fund today, which called for more fiscal and monetary measures to shore up growth. Europe’s debt crisis is curtailing demand for the exports that make up about half of the country’s economy, with shipments falling in August for the second-straight month.
“Companies need to get more cash because growth is faltering,” said Lee Hwa Jin, a credit analyst at Kiwoom Securities Co., the nation’s biggest stock broker by trade volume. “Issuance this week is unlikely to be for new investments, but for smooth cash management. That’s the trend at the moment.”
Yields on three-year AA- rated corporate bonds declined four basis points this week to 3.32 percent, according to the Korea Financial Investment Association’s benchmark index. Interest rates on AA rated U.S. company notes dropped four basis points to 2.12 percent, Bank of America Merrill Lynch indexes show.
Samsung Heavy sold 300 billion won of 3.25 percent three-year bonds and 200 billion won of 3.34 percent securities due in September 2017, according to data compiled by Bloomberg. The ship maker paid 4.39 percent to sell five-year debt in February, the data show.
South Korean shipyards have boosted bond sales as a move away from building container and commodity vessels toward more time-consuming drill ships and offshore units leaves them waiting longer to get paid. Hyundai Heavy Industries Co. and Samsung Heavy are the second- and third-biggest issuers of corporate bonds in the Korean market this year, behind Korea Electric Power Corp., data compiled by Bloomberg show.
“The funds will be used to build offshore projects on our order book,” according to an e-mailed statement from Samsung Heavy today. “We took advantage of the low interest rates on domestic bonds and raised a bit more than we need.”
E-Mart sold 300 billion won of bonds due September 2017, according to data compiled by Bloomberg. The notes, which were priced to yield 3.22 percent, will refinance existing debt, Hwang Jong Soon, a public relations official for E-Mart said in a telephone interview yesterday.
The discount store operator last sold debt in January with a sale of 400 billion won of three-year bonds that were priced to yield 3.76 percent, Bloomberg-compiled data show.
Korea’s gross domestic product rose 2.3 percent in the second quarter from a year earlier, the slowest pace in almost three years. Korea Development Institute, the state-funded researcher, cut its growth forecast for this year to 2.5 percent from 3.6 percent on Sept. 17 and warned the nation should prepare for a prolonged period of “low” expansion.
The Bank of Korea unexpectedly left borrowing costs unchanged in September in its second surprise decision this quarter as it opted to preserve policy room in the event of a deeper slowdown.
Governor Kim Choong Soo and his board kept the benchmark seven-day repurchase rate at 3 percent last week after a cut in July, even as the central bank warned that growth momentum appears to be slackening. Economists had expected the central bank to leave rates on hold in July and reduce them this month, according to Bloomberg News surveys.
The won lost 0.1 percent this week to 1,118.63 per dollar at 11:19 a.m. in Seoul, according to data compiled by Bloomberg. The Kospi index of stocks declined 0.3 percent, while South Korea’s government bonds rose, pushing the three-year yield down three basis points to 2.84 percent.
SK Gas Co., Kumho Petro Chemical Co. and LG Fashion Corp. are among companies planning bond sales, according to preliminary data compiled by Bloomberg.
“Companies have been waiting in the wings to see if the central bank would cut rates before selling debt,” said Park Cheong Ho, a credit analyst at Dongbu Securities Co. “Sales will be active for the next few months now because companies want to boost liquidity amid waning economic growth.”
Top Five Underwriter Rankings Year to Date
Company Market Share Amount in wonWoori Investment & Securities Co. 16.2% 6.66 trillion Korea Investment & Securities Co. 12.7% 5.25 trillion KB Investment & Securities Co. 12.3% 5.05 trillion TongYang Securities Inc. 10.2% 4.22 trillion Shinhan Investment Corp. 7.9% 3.24 trillion