Investigation of 12 Companies Submitting Securities Reports This Year
Focus on Extending Maturity Structure
No Use for New Investments or Operating Funds
[Asia Economy Reporter Lim Jeong-su] As the bond market stabilizes, large corporations are consecutively issuing corporate bonds. However, with the increasing interest burden on corporate bonds, most companies are raising funds solely to respond to maturing borrowings. Unlike previous years, there has been no fundraising yet for new investments or securing surplus funds. It is analyzed that there is no demand to proactively secure investment funds amid growing economic uncertainty.
According to Asia Economy's tally on the 9th, among the 12 companies that have issued or submitted securities registration statements to issue public corporate bonds this year, all 12 plan to use most of the raised funds to repay maturing borrowings.
POSCO plans to issue 700 billion KRW worth of corporate bonds to prioritize repaying 630 billion KRW in global bonds (KP) maturing on the 17th. These are dollar-denominated bonds issued three years ago with a three-year maturity and an issuance rate of 2.38%. This decision is interpreted as due to the rise in dollar bond interest rates and exchange rates, making the cost of raising won-denominated bonds relatively cheaper.
Large corporations such as KT (300 billion KRW), Yeonhap Asset Management (100 billion KRW), Lotte Confectionery (150 billion KRW), Hyundai Steel (200 billion KRW), LG Uplus (200 billion KRW), and E-Mart (390 billion KRW) also plan to use most of the raised funds to repay maturing corporate bonds.
Many companies aiming to repay short-term borrowings such as Commercial Paper (CP) have also entered the bond issuance market. CJ ENM plans to issue 170 billion KRW in corporate bonds to repay 100 billion KRW of CP issued in August last year with a six-month maturity and 10 billion KRW of CP issued in November with a three-month maturity. The short-term CP issued in November last year had a notably high interest rate of 5.10%. CJ ENM plans to repay maturing corporate bonds simultaneously with CP repayment.
Lotte REITs will issue 70 billion KRW of low-interest secured bonds backed by its assets. The raised funds will be used to repay high-interest 3-month electronic short-term bonds (Jeondanchae) with an interest rate of 6.20%. E-Mart will also use part of the corporate bond issuance funds to repay short-term Jeondanchae. Korea Financial Group plans to use part of the corporate bond issuance funds to repay CP.
Some companies have stated securing operating funds as the purpose of issuing corporate bonds, but upon closer inspection, the funds are actually used to fulfill debts equivalent to borrowings such as payment notes and usance bills. LG Uplus will use part of the raised funds for payment note settlements, and Daesang will use part of the corporate bond issuance funds for usance bill settlements.
No company has yet declared issuing corporate bonds for investment purposes in January this year. An investment banking industry official said, "Although the bond market has stabilized, corporate bond issuance rates remain considerably high," adding, "Due to the heavy interest burden combined with economic uncertainty, companies are reluctant to secure surplus funds for investments."
Another industry official said, "The cautious fundraising pattern of companies will continue for a while," but predicted, "Since there is strong waiting demand to buy corporate bonds compared to supply, a significant amount of corporate bonds will be issued by companies aiming to secure funds to repay borrowings at relatively low interest rates before the Bank of Korea raises rates further."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
