South Korea Bond Sales Slide From 2011 Record as Economy Cools

South Korea Bond Sales Slide From 2011 Record as Economy Cools
The Bank of Korea kept borrowing costs unchanged at 2.75 percent on Dec. 13 after 25 basis-point cuts in July and October. Photographer: Jean Chung/Bloomberg

Company bond sales in South Korea retreated from a record set in 2011 this year as slowing economic growth at home damped investor appetite for debt.

Korea Electric Power Corp. led the offerings to 54.8 trillion won ($51.1 billion) as of Dec. 28, a 4.4 percent decline from the same period of 2011, according to data compiled by Bloomberg. The 12 months to Dec. 31 is poised to be the second-biggest year for corporate note sales in the country, after 57.3 trillion won of debt was sold in 2011, the data dating back to 1999 show.

South Korea’s economy grew 1.5 percent in the three months to Sept. 30, the slowest pace in three years. The holding firm of Woongjin Group, whose interests span energy, chemicals and manufacturing, and its construction unit filed for bankruptcy protection in September, undermining the confidence of investors already rattled by worsening economic prospects. Bond sales will probably be little changed in 2013, even with borrowing costs expected to remain at record lows, according to KB Investment & Securities Co., the top underwriter of corporate debt this year.

“Unless sentiment toward lower-rated companies improves significantly, we expect sales volumes to be similar to 2012,” Kim Jae Yean, a director at KB Investment & Securities’ debt capital markets division, said in a Dec. 27 e-mailed response to questions. Companies will continue to benefit from low interest rates next year, Kim said.

Borrowing Costs

The Bank of Korea kept borrowing costs unchanged at 2.75 percent on Dec. 13 after 25 basis-point cuts in July and October. Although Governor Kim Choong Soo said a rapid rebound in growth is “unlikely,” the central bank said in its statement the nation is poised for a “moderate” export-led recovery and inflation will remain low, bolstering the view rates will remain on hold.

KB Investment & Securities managed 8.37 trillion won of note sales this year, giving it a 15.3 percent market share, according to Bloomberg data. The Seoul-based unit of KB Financial Group Inc., which owns the country’s largest lender, was the No. 1 ranked arranger for a second consecutive year, the data show.

Top Three

Woori Investment & Securities Co. held its No. 2 position, arranging 7.94 trillion won of debt for a 14.5 percent market share. Korea Investment & Securities Co. ousted Samsung Securities Co. to round out the top three, managing 7.9 trillion won of sales for a 14.4 percent share, the data show.

Average yields on bonds sold by South Korean companies rated AA- fell to 3.31 percent on Dec. 27, from 4.21 percent in the end of 2011, Korea Financial Investment Association data show. The extra yield investors demand to own the notes over similar-maturity government debt has narrowed 29 basis points this year to 48 basis points as of Dec. 27, the data show.

“The spread may widen as investors are increasingly driven by risk aversion,” Kim Dae Young, a managing director who’s in charge of debt sales at Woori Investment & Securities, said by phone from Seoul yesterday. “It may take a while for investor sentiment toward corporate bonds to stabilize.”

Slower Growth

South Korea’s government lowered its growth forecasts for this year and 2013 yesterday as Europe’s debt crisis caps demand for the nation’s exports. Gross domestic product will expand 3 percent next year, the Finance Ministry said in a statement, less than the 4 percent predicted in September.

Financial Supervisory Service Governor Kwon Hyouk Se said earlier this month the country’s regulators are considering steps to help stimulate debt sales by lower-rated companies, which may face a funding “crunch” next year on slowed economic growth.

Korea Electric Power Corp., rated A+ by Standard & Poor’s, was the nation’s biggest corporate borrower in 2012, with its units selling 2.35 trillion won of notes, according to data compiled by Bloomberg. Hyundai Heavy Industries Co., the world’s largest shipbuilder, followed with 1.95 trillion won of sales.

There are no further bond sales planned for the rest of this year, according to preliminary data compiled by Bloomberg.

“In terms of rates and investor demand, this year has been good for companies with some even raising funds in advance to take advantage of the trend,” said Hwang Won Ha, a credit analyst at HMC Investment Securities Co. “It’s difficult to expect aggressive debt sales from companies next year as the weak economy weighs on their spending plans.”

Top Five Underwriter Rankings Year to Date

Company                          Market Share    Amount in Won
KB Investment & Securities Co.   15.3%         8.37 trillion
Woori Investment & Securities Co.14.5%         7.94 trillion
Korea Investment & Securities Co.14.4%         7.90 trillion
Tongyang Securities Inc.          8.4%         4.60 trillion
Shinhan Investment Corp.          7.5%         4.09 trillion
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