[Bond Market Analysis] 7.6 Trillion Maturity of 'A Grade and Below' Corporate Bonds in H1, Refinancing...

Polarized Demand Despite Bond Market Stability
Mixed Prospects by Industry and Group
Heavy Industries Like Construction and Petrochemicals Expected to Struggle

[Asia Economy Reporter Lim Jeong-su] It has been estimated that corporate bonds rated A-grade (A+, A0, A-) or below, maturing from March to June, amount to 7.6 trillion won. With a severe polarization in investment demand between high-credit-quality prime corporate bonds and relatively lower-credit-quality non-prime corporate bonds, companies facing bond maturities are increasingly struggling with refinancing their corporate bonds.

According to data compiled by Asia Economy on the 19th through the Korea Securities Depository’s securities portal (SEIBRO), corporate bonds maturing from March to June for companies rated A-grade or below (including unrated private placement bonds) total 7.6 trillion won. Considering that refinancing preparations usually begin 1 to 3 months before maturity, most companies should start preparing for refinancing by February at the latest.

However, most companies rated A-grade or below are still hesitant to issue corporate bonds. This is because the issuance market atmosphere sharply contrasts between companies rated AA-grade or above and those rated A-grade or below. Hyosung Chemical, rated A with a negative outlook, was humiliated during its corporate bond demand forecast for institutional investors on the 17th. Although funding was secured by the underwriters KB Securities and Korea Investment & Securities, along with KDB Industrial Bank?which has loans to Hyosung Chemical?taking up the unsold portion, the market reality of low-rated corporate bonds being shunned was confirmed. This was in stark contrast to the overwhelming subscription demand for prime bonds rated AA or higher.

Companies facing bond maturities cannot help but deepen their concerns. In March alone, within the A-grade category, Yeochun NCC (A+, 270 billion won), Hyundai Doosan Infracore (A-, 176 billion won), Taeyoung Construction (A, 140 billion won), SK Magic (A+, 120 billion won), and GS E&R (A+, 100 billion won) are approaching bond maturities. Among BBB-grade companies, Korean Air (BBB+, 160 billion won), Hanjin KAL (BBB, 144 billion won), and Hanshin Engineering & Construction (BBB, 100 billion won) need to refinance or repay maturing bonds. In April, SK Ecoplant (A-, 200 billion won) and Samsung Heavy Industries (65 billion won) must respond to corporate bond maturities.

The investment banking (IB) industry expects that even within the A-grade category, demand forecast results will vary by industry and corporate group. Companies like Shinsegae Food (A+) and Hana F&I (A) have solid backing from the Shinsegae Group and Hana Financial Group, respectively, so there was corporate bond investment demand despite being A-grade. However, the dominant view is that companies in heavy industries such as construction, petrochemicals, and aviation will find it difficult to attract investment demand due to deteriorating performance and low ratings.

An IB industry official said, "Demand from institutional investors willing to invest in A-grade bonds is limited, so some demand will flow to certain decent industries, solid large corporate group affiliates, or companies expected to improve their credit ratings, though it won’t be sufficient overall." He added, "However, it will be difficult to expect a general resolution of demand for A-grade companies in the short term."

Another official said, "Although Hanjin KAL and Korean Air are large corporate affiliates, the market is demanding high interest rates, making them hesitant to issue corporate bonds." He added, "Companies in construction or heavy chemical industries have yet to enter the bond issuance market." He further predicted, "Companies that find it difficult to enter the public bond market may choose alternative routes such as private placement bonds or commercial paper (CP)."