Apple Buys Hyundai Bonds as Investor Pool Widens: Korea MarketsKyungji Cho
Hyundai Motor Co.’s financing arm said Apple Inc. and Oracle Corp. were among U.S. companies lured to its debt during South Korea’s busiest first quarter of international bond sales in two years.
The nation’s overseas note sales climbed 58 percent this year as demand was lifted by investment-grade yields 52 basis points above developed markets, a recovering economy and well-known consumer brands. Hyundai Capital Services Inc. and Hyundai Capital America, a U.S.-based unit of Hyundai Motor, raised a combined $2 billion in the quarter, drawing purchases from companies including the maker of the iPod.
“We were able to broaden our investor pool of developed-market investors this time through intensive marketing,” JW Lee, finance team leader at Hyundai Capital Services said in a March 24 interview. “As a result, corporates including Apple and Oracle took 15 percent of our latest bonds. We’ve rarely seen these high-grade investors in the Korean dollar-bond market before.”
Average dollar-bond yields for Korean issuers reached a record low last week as costs for Chinese borrowers touched the highest since August, according to JPMorgan Chase & Co. indexes. Costs may drop further as defaults in China and border disputes in Russia drive investors to South Korea’s well-known global companies, said Whang Youn Sung, Seoul-based director of global capital markets at Bank of America Corp.’s local unit.
Investors in the U.S. bought 65 percent of Hyundai Capital Services’ $500 million issue of three-year floating-rate notes this month, according to a person familiar with the matter, who asked not to be identified because the details are private. The bonds were sold at 80 basis points more than the three-month London interbank offered rate, Bloomberg data show.
Irvine, California-based Hyundai Capital America issued $1.5 billion of notes in the quarter. The combined sales of the two financing units made Hyundai Motor the largest non-state-owned South Korean seller of international bonds in the period, according to Bloomberg-compiled data which groups issues under the parent company.
“Everyone can see Hyundai’s cars on the road and that familiarity is helping to attract more investors,” said Whang, the top arranger of the nation’s international bond sales. “Until recently U.S. investors typically accounted for a maximum of 30 percent to 40 percent of Korean dollar bond sales.”
The yield premium on Hyundai Capital Services’ $500 million of 2015 notes, sold in 2009, reached a low of 83 basis points as of Mar. 19, Bloomberg data show.
The average dollar-denominated bond yield for Korean issuers was at a record low of 3.43 percent on Mar. 19, according to a JPMorgan Chase & Co. index. The spread on dollar debt fell to 123 basis points on March 25, the lowest since 2007, the indexes show.
South Korean companies sold $11.08 billion of international bonds this year, 58 percent more than in first quarter last year. Note sales in emerging markets globally by contrast tumbled 24 percent to $242 billion in the same period.
LG Electronics Inc., rated BBB- by Standard & Poor’s and Baa3 by Moody’s Investors Service, hired six banks to arrange a series of fixed-income investor meetings in Asia, Europe and the U.S. during the week of March 31, a person familiar with the matter said yesterday.
South Korean investment grade notes paid 2.13 percent, according to an index from Bank of America Corp.’s Merrill Lynch unit. Corporate notes from developed markets offered 1.61 percent, according to a gauge from Merrill Lynch and Pacific Investment Management Co.
Cupertino, California-based Apple held $50.1 billion in long-term marketable corporate securities as of Dec. 28, according to a regulatory filing.
Kristin Huguet, a spokeswoman for Apple, declined to comment. Oracle spokeswoman Deborah Hellinger didn’t return a call for comment.
Export-Import Bank of Korea sold $3.6 billion of offshore bonds this quarter. Kexim, as the state-owned bank is known, sold 76 billion yen ($746 million) of Samurai bonds in three tranches this month. The bank sold two-year notes at 0.4 percent, three-year notes at 0.45 percent and five-year notes at 0.64 percent.
“The coupon rate was a record low among all Samurai bonds sold by Korean issuers,” Kexim said in an e-mailed statement on Mar. 7. “We differentiated ourselves from other emerging markets amid signs of crisis in some emerging economies.”
As the U.S. Federal Reserve cuts its asset-purchase program, there will be a greater differentiation in the credit performance of some individual countries and sectors, Moody’s said in a Mar. 12 statement. Asian exporters with low external debt burdens, such as Singapore, Hong Kong and South Korea were best placed, according to the statement.
The cost of insuring the debt of South Korean 5-year U.S. dollar bonds against non-payment has fallen 5 basis points this year to 61 basis points, according to prices from data provider CMA. The nation is considering selling foreign-currency notes, according to a person familiar with the matter, who asked not to be identified because the terms aren’t set.
South Korea’s 10-year won government-bond yield fell 7 basis points to 3.56 percent. The won weakened 2.4 percent this year to 1074.91 per dollar, after gaining 9.8 percent in the previous two years.
South Korea’s economy grew 3 percent last year, compared with a 2.3 percent gain in 2012, Bank of Korea estimated yesterday. The nation will act if needed against risks from Federal Reserve tapering and emerging-market instabilities, Finance Minister Hyun Oh Seok said in a speech to foreign journalists in Seoul on Mar. 25
Moody’s cut some Korean companies’ credit ratings this year such as GS Caltex Corp., Lotte Shopping Co., LG Electronics Inc. and KT Corp. Standard & Poor’s revised the outlook on Hyundai Capital Services’ BBB+ long-term issuer credit rating on Jan. 28 to positive from stable.
“Korea is one of the Asian countries which will benefit the most from the expected pickup in economic activity in developed markets, which partly explains the recent strong demand for their dollar bonds,” Joep Huntjens, the head of Asian debt at ING Investment Management Co. in Singapore said in an e-mail interview on Mar. 25. “We believe other Asian dollar bond markets are more attractive at current spread levels.”