Shin Geumtu and Hantoo Securities Arrange $65 Million Kimchi Bond Issuance for Indian Pulp and Paper Company

[Asia Economy Reporter Lim Jeong-su] Shinhan Financial Investment and Korea Investment & Securities have underwritten kimchi bonds (foreign currency-denominated bonds issued domestically) for the largest Indonesian (Indonesian) pulp and paper manufacturing group affiliate globally. They have attracted attention by consecutively underwriting kimchi bond issuances for companies in Southeast Asian countries such as Indonesia and Vietnam amid the difficulties caused by COVID-19.

According to the investment banking (IB) industry on the 25th, Shinhan Financial Investment and Korea Investment & Securities acquired kimchi bonds worth $65 million (approximately 75 billion KRW) issued by the Indonesian pulp and paper company ‘PT Inda Kiat Pulp & Paper Tbk (Indakiat).’ The bond maturity is three years, with a lump-sum principal repayment at maturity. The two securities firms acquired the kimchi bonds through an SPC and then issued asset-backed bonds based on these bonds to raise the acquisition funds.

Indakiat is an affiliate of Asia Pulp & Paper Group, the world’s largest integrated paper group. It is known as a subsidiary of the group holding company PT Purinusa Eka Persada (Purinusa). Purinusa provided a joint guarantee to its subsidiary Indakiat during the kimchi bond issuance process. This is interpreted as reinforcing repayment stability through the joint guarantee of the holding company of the world’s largest integrated paper group.

Shinhan Financial Investment and Korea Investment & Securities have been steadily underwriting kimchi bond issuances for local Southeast Asian companies despite COVID-19. Shinhan Financial Investment previously led the kimchi bond issuance of Vietnam’s Mirae Asset Finance Company (MAFC) in June. MAFC is a top-five credit finance company in Vietnam, wholly owned by Mirae Asset Capital.

Additionally, the two securities firms have supported the issuance of kimchi bonds domestically for other group affiliates such as the Indonesian pulp and paper manufacturer ‘PT OKI Pulp & Paper Mills’ and the local retail finance company ‘PT Home Credit Indonesia.’

An IB industry official said, "By issuing asset-backed bonds at around 1% and acquiring high-interest kimchi bonds with rates reaching 5-7%, it is possible to earn an interest rate spread of about 4-5%," adding, "Despite the difficulties caused by COVID-19, the long-established local network serves as a foundation for continuously underwriting diverse local corporate financing."