[High-Interest Business] ① Securities and Banks Eager to Acquire High-Interest Large Corporation CPs

KB, SK, Daol Investment & Securities, Shinhan Bank Lead
Large Corporations Also Form Annual Interest Rates of 5-10% by Credit Rating

Editor's NoteFinancial companies are fully leveraging corporate liquidity crises as high-yield opportunities. They provide funds to companies in urgent need of cash to resolve liquidity risks, earning interest or fee income in return. From the perspective of financial companies engaged in investment institutions or investment banking (IB) operations, they take on the role of partners to companies during uncertain times, capturing two benefits: profits and strengthened relationships with those companies.

[Asia Economy Reporter Lim Jeong-su] Securities firms and banks are aggressively acquiring high-interest corporate commercial papers (CP) and electronic short-term bonds (both hereafter referred to as CP) issued for short terms. With short-term CP interest rates under one year maturing forming between 5% and 10% annually depending on credit rating, CP acquisitions have served as relatively low-risk yet decent sources of income.

Securities Firms Acquire 3.9 Trillion Won Due to Attractive Interest Rates... Led by KB Securities

According to the Korea Securities Depository, from the beginning of this year until the 27th, general corporations (excluding financial companies and investment firms) issued CP worth 8.2146 trillion won. Excluding the Lunar New Year holidays, this volume was issued over about 18 business days. On average, more than 500 billion won worth of general corporate CP was issued daily. Most of these CPs were acquired by securities firms or banks holding securities or comprehensive financial accounts, either held internally or sold to investors.

Securities firms purchased about 45% of this amount, equivalent to 3.8866 trillion won. Considering that CPs without specified acquiring institutions amounted to 1.654 trillion won, securities firms acquired the largest share among all financial sectors. Among securities firms, KB Securities' activity stands out. Since the beginning of this month, KB Securities has acquired 1.28 trillion won worth of general corporate CP. For A1-rated CP, they purchased significant amounts issued by Samsung C&T, SK, SK Innovation, CJ CheilJedang, and CJ Logistics.

KB Securities particularly acquired many high-interest CPs rated A2 or below, which have higher interest rates (hill-in rates). Last week, they acquired 45 billion won worth of Seragem CP rated A3. Previously, they acquired substantial amounts of CP issued by A2-rated companies such as SK Rent-a-Car, LG Display (A2+), Shinsegae DF (A2+), Lotte Construction (A2+), and High Plaza (A2+). CPs rated A2 or below have interest rates ranging from 6% to 10% annually, offering relatively higher profitability compared to the high-grade A1 CPs.

Following KB Securities, mid-sized securities firms such as Daol Investment & Securities (586 billion won), SK Securities (500 billion won), Kiwoom Securities (328 billion won), Bukook Securities (250.6 billion won), and Hi Investment & Securities (230 billion won) also acquired large volumes of CP. Among these, SK Securities acquired many CPs from SK Group affiliates such as SK and SK Innovation. Korea Investment & Securities acquired a relatively small total volume of 140 billion won but had a high proportion of profitable CPs rated A2 or below, purchasing CPs issued by Hite Jinro Holdings (A2+), Lotte Cultureworks (A2-), and AJ Networks (A3+).

Securities firms usually sell acquired CPs to institutional investors, but recently, the volume held internally has significantly increased. A KB Securities official said, "For large corporate CPs, the risk of default in the short term is low, but due to liquidity concerns, interest rates temporarily rise sharply, resulting in high profitability," adding, "We plan to hold a substantial portion of the acquired CPs internally."

Banks Also Aggressively Purchase CP Using Comprehensive Financial Accounts

Banks such as Shinhan Bank and Hana Bank also purchased CPs comparable to securities firms. The total CP acquired by banks from the beginning of this year until the 27th amounted to 2.659 trillion won. Among them, Shinhan Bank accounted for an overwhelming share, acquiring 2.37 trillion won worth of CP.

Shinhan Bank mainly acquired A1-rated high-grade CPs issued by many large corporations including SK, Hanwha, E1, KT Estate, Emart, Hanwha Solutions, KCC, Ottogi, LS Cable & System, CJ Logistics, Lotte Himart, LG Uplus, GS Power, Dongwon F&B, and Hyundai Oilbank. Notably, CP acquisitions from Lotte Group affiliates, which have Japanese major shareholders such as Lotte Holdings, Hotel Lotte, Lotte Shopping, Lotte Himart, Lotte Confectionery, and Korea Seven, were particularly prominent. Shinhan Investment Corp. also acquired 120 billion won worth of CP in January, of which 100 billion won, excluding 20 billion won from KCC, were CPs issued by Lotte Holdings and Lotte Property & Development.

Hana Bank acquired 230 billion won worth of CP mainly issued by holding companies such as Lotte Holdings and Hanwha. KDB Industrial Bank acquired CPs with relatively low credit ratings, mainly A2 or below, such as Kakao Entertainment (A2+), Hanshin Engineering & Construction (A3), and E-Land World (A3). A financial company official explained, "Banks mainly acquired CPs as substitutes for short-term loans to large corporations." Another official added, "As companies increasingly use CPs as substitutes for corporate bonds, CPs with relatively longer maturities and higher discount rates have been issued in large volumes," noting, "These CPs have become a solid source of income for financial companies."