'Reacting' to falling interest rates... S-Oil, Samsung C&T, etc. rush to issue high-grade bonds [Debt Capital Markets]

[Korea Financial Times, Lee SungKyu] The bond market has been rallying as recession fears and yen carry trade liquidation have unnerved the market. As interest rates are expected to fall in the future, domestic companies are also raising funds by issuing bonds one after another. However, it remains to be seen whether they can narrow the gap between high-grade bonds (AA or higher) and non-prime bonds. Hanwha Solutions, for example, seems to be conscious of market concerns by deciding to issue new capital securities in the form of a private placement.

According to the investment banking (IB) industry on Aug. 8, major Korean companies are preparing to raise funds through the public corporate bond market.

Recently, the global stock market was shocked by the liquidation of the yen carry trade in addition to concerns about the US recession. In the aftermath of this, the safe-haven phenomenon has intensified, and both overseas and domestic bond markets have continued to strengthen.

In the meantime, companies have been rethinking the timing of their financing while waiting to see if the US Federal Reserve (Fed) will cut interest rates. They have increased their reliance on short-term funding and waited for medium- and long-term rates to fall. Excluding capitalization bonds, the corporate bond market this year has been dominated by short-term (less than five years) issues.

This is not to say that corporates are looking to increase their long-term issuance anytime soon. However, with more clarity on the direction of market rates, they are rushing to raise money. Maturities are also likely to increase slightly. Considering that July and August are usually the slow months for the corporate bond market, the market seems to be sensitive to changes.

First, financial companies stand out. Hanwha General Insurance and KDB Life Insurance are preparing demand forecasts for subordinated bond issues worth 200 billion won and 100 billion won, respectively, this month. Depending on the results, they are open to issuing more. KB Securities and Kiwoom Securities are also planning to issue corporate bonds worth 300 billion won and 150 billion won, respectively, this month.


General companies such as S-Oil and Samsung C&T are also planning to raise 200 billion won and 300 billion won, respectively.

For high-grade bonds (AA or higher), the market is expected to have no major problems. However, the situation is still unstable for non-prime bonds.

Hanwha Solutions has decided to issue up to 800 billion won in new capital bonds (A+, negative). However, the fact that it is raising funds through a private placement rather than a public offering shows market concerns. KDB Life will hold a pre-subscription for the issuance of subordinated bonds (A+, negative) worth KRW 200 billion.

"The decline in market interest rates is creating a favorable environment for corporate bond issuance," said an investment banking (IB) official, "but we are concerned that the decline in interest rates accompanied by market instability may reduce the attractiveness of non-superior bonds." "The fact that Hanwha Solutions and KDB Life are capitalized securities could be a factor, but it remains to be seen whether the market will be able to absorb them given their relatively large volumes," he added.

Lee SungKyu (lsk0603@fntimes.com)