Stock Market Rebound Drives 359.6% Increase in Corporate Capital Increases Last Month (Comprehensive)

[Asia Economy Reporter Minji Lee] As individual participation in the stock market rapidly restored the index to pre-COVID-19 levels, the number of companies securing cash through paid-in capital increases has increased.

According to the "Direct Financing Performance of Companies in July 2020" released by the Financial Supervisory Service on the 26th, nine companies conducted paid-in capital increases, issuing a total of 1.8241 trillion KRW. Considering that only 396.9 billion KRW (3 companies) was raised through paid-in capital increases last month, the scale increased by 259.6% in just one month. This is also about 84% (1.3343 trillion KRW) more compared to the same month last year.

Last month, as the stock market showed a strong rebound with a 7% surge in just one month, it is interpreted that the increase in companies conducting paid-in capital increases was influenced. The large-scale paid-in capital increases by Korean Air (1.027 trillion KRW) and CJ CGV (220.9 billion KRW) for debt repayment purposes were also reflected.

Through initial public offerings (IPOs) last month, a total of 242.3 billion KRW (12 cases) worth of shares were issued. Accordingly, the total amount of shares issued through paid-in capital increases and IPOs by companies in July was 2.0664 trillion KRW (21 cases), an increase of 889.7 billion KRW (75.6%) compared to the previous month (1.1767 trillion KRW, 12 cases).

Conversely, the issuance of corporate bonds amounted to 17.7091 trillion KRW, a 3.4% (524.8 billion KRW) decrease compared to the previous month (18.3339 trillion KRW). Although financial bond issuance, mainly bank bonds, increased, general corporate bonds and asset-backed securities (ABS) issuance decreased.

Financial companies' financial bond issuance totaled 12.5686 trillion KRW (196 cases), a 27.1% increase compared to the previous month (9.892 trillion KRW, 170 cases). The significant increase was due to financial holding company bonds and bank bonds rising by 33.7% and 80.1%, respectively, compared to the previous month. Minjung Kim, a researcher at Hanwha Investment & Securities, said, "Banks are increasing demand for bank bond issuance to raise the liquidity coverage ratio (LCR), which had dropped to 8%, back to 100% before September through bank bond issuance." Among other financial bonds, credit card companies (down 17.8%) and securities firms (down 19.7%) reduced issuance, while installment finance companies (capital) and other financial companies increased corporate bond issuance by 20.1% and 1466.7%, respectively.

Corporate bonds issued through public offerings by general companies amounted to 3.455 trillion KRW (40 cases), a 43.8% (2.688 trillion KRW) decrease compared to the previous month (6.143 trillion KRW, 64 cases). There were many mid- to long-term bonds issued for debt repayment purposes, including 1.9857 trillion KRW issued for refinancing. The decrease in general corporate bond issuance is attributed to the seasonal off-season due to summer vacations and the submission of semi-annual reports.

By credit rating, issuance of BBB-rated bonds, which had been sidelined in the bond market, increased significantly last month. This was largely due to the government, the Bank of Korea, and the Korea Development Bank officially launching the Special Purpose Vehicle (SPV) for corporate liquidity support last month, improving issuance conditions for non-investment grade bonds.

Last month, BBB-rated bonds were issued at 380 billion KRW (4 cases), an increase of 46.2% compared to the previous month (260 billion KRW). Investment-grade bonds such as AAA (400 billion KRW) and AA (1.65 trillion KRW) decreased by 74% and 45%, respectively, compared to the previous month. As a result, the issuance proportion of bonds rated A and below increased by 14.8 percentage points compared to the previous month.

Meanwhile, companies raised a total of 19.7755 trillion KRW in the capital market last month, an increase of 264.9 billion KRW (1.4%) compared to June.