Korean Bond Sales Set for Five-Month High as Economy Accelerates

South Korean companies are poised to sell the most won-denominated bonds in five months as they scramble to lock in near-record-low borrowing costs after the economy expanded at its fastest pace since 2011.

SK Networks Co., the trading arm of South Korea’s third-largest industrial group, led offerings this week, bringing expected sales in April to 4.51 trillion won ($4.07 billion), the most since November, preliminary figures compiled by Bloomberg show. Expected issuance of 1 trillion won this week comes after 1.33 trillion won last week, which was the busiest in six weeks, the data show.

South Korea’s economy grew the most in two years in the first quarter, fueling speculation that Bank of Korea Governor Kim Choong Soo may resist political pressure for an interest-rate cut after borrowing costs were left unchanged on April 11. The extra yield investors demand to own Korean company notes over similar-maturity government debt has narrowed to 35 basis points from 47 at the end of last year. Three-year sovereign notes were yielding 2.56 percent, near an all-time low of 2.44 percent on April 5.

“Borrowers are trying to secure funds through longer-term notes while interest rates stay low,” Chung Yeon Hong, an analyst at NH Investment & Securities Co., said by telephone yesterday. “From investors’ point of view, there’s no big yield merits in sovereign notes so I believe demand for corporate notes will continue to be solid in May.”

SK Networks

SK Networks sold 250 billion won of notes in a two-part sale on April 24. The money will be used for refinancing, the company said in a regulatory filing on April 24. Two other companies plan to price offerings this week, according to data compiled by Bloomberg.

“Our bond sale was successful as we actively took advantage of longer-term notes amid the recent trend of low interest rates,” SK Networks wrote in an e-mailed response to questions. “The sale helped further boost the stability of our finances.”

Posco Energy Co., the power generating unit of Asia’s third-biggest steelmaker, raised 200 billion won in five-year and seven-year bonds, Bloomberg-compiled data show. Proceeds will be used to repay debts and to invest in power plant projects, the company said in an e-mail.

Asiana Airlines Inc., the nation’s second-largest carrier, raised 150 billion won in three-year and five-year bonds to fund operating capital, according to an April 23 company filing.

South Korea’s gross domestic product gained 0.9 percent in the first quarter from the previous three months, up from a 0.3 percent increase in the fourth quarter, the Bank of Korea said yesterday. Before the report, concerns had mounted that Asia’s fourth-largest economy would be hurt by record household debt and a stagnant housing market, prompting President Park Geun Hye to unveil a $15 billion extra budget and property stimulus package this month.

The central bank is likely to hold the rate in the coming months based on the stronger-than-expected growth last quarter and expectations of better growth in the second half, Citigroup Inc. analysts led by Jaechul Chang wrote in a report yesterday.

Top Five Underwriter Rankings Year to Date
Company                            Market Share   Amount in Won
KB Investment & Securities Co.     20.5%          2.66 trillion
Woori Investment & Securities Co.  17.7%          2.28 trillion
Korea Investment & Securities Co.  17.4%          2.26 trillion
Daewoo Securities Co.               8.9%          1.15 trillion
SK Securities Co.                   4.6%          593 billion