As Market Interest Rates Fall, More Companies Aim to Issue Bonds
SK Siltron, Hanwha, E1 Enter Bond Market One After Another
Buy Orders Flood in at 10 Times the Bond Issuance Amount
Both Institutions and Individuals Expected to Expand Corporate Bond Investments
At the beginning of the year, institutional investment funds are pouring into the corporate bond market. The perception that interest rates have peaked, along with growing expectations that the Bank of Korea will cut the base rate within the year, has created a favorable environment for bond issuance. Not only high-grade corporate bonds with credit ratings of AA or higher but also recently A-rated companies have succeeded in attracting large-scale investment demand in corporate bond demand forecasts.
According to the investment banking (IB) industry on the 17th, following large corporations with credit ratings of AA (AA+, AA, AA-) or higher, A-rated (A+, A, A-) companies have consecutively entered the corporate bond issuance market. Hanwha Energy (A+) and SK Incheon Petrochem (A+) succeeded in attracting corporate bond investors, and companies such as SK Siltron (A+), SK Rent-a-Car (A+), E1 (A+), HD Hyundai Heavy Industries (A), and Hanwha (A+) are selecting lead securities firms and preparing to enter the corporate bond market.
Hanwha Energy received investment orders worth approximately KRW 760 billion, about 10 times the issuance amount, in the corporate bond auction held on the 10th to issue KRW 80 billion worth of corporate bonds. SK Incheon Petrochem, which conducted a demand forecast on the 12th, also attracted orders worth KRW 870 billion for a KRW 150 billion issuance, leading to an increase in the corporate bond issuance amount. Both companies issued bonds at interest rates lower than the private bond evaluation rate (market average rate).
A bond market official explained, "A-rated bonds have higher interest rates compared to AA-rated or higher high-grade corporate bonds, so there is strong investment demand from individual investors and asset management firms," adding, "There has also been an increase in securities firms participating in demand forecasts to sell retail bonds to individual investors." The official also noted, "Not only institutional investors but also individual bond investments are noticeably increasing."
Since the beginning of the year, institutional funds worth trillions of won have continuously flowed into corporate bonds of large corporations rated AA or higher. Corporate bond demand forecasts for LG Uplus (KRW 1.71 trillion), Hanwha Aerospace (KRW 1.42 trillion), Hanwha Solutions (KRW 1.335 trillion), CJ CheilJedang (KRW 1.29 trillion), HL Mando (KRW 1.23 trillion), and Shinsegae (KRW 1.02 trillion) have each attracted purchase funds exceeding KRW 1 trillion.
The popularity of corporate bonds at the beginning of the year is expected to continue for some time. As market interest rates are expected to peak and gradually decline, investor demand is increasing not only for interest income from bond investments but also for capital gains. When market interest rates fall, the prices of existing bonds rise. Some forecasts suggest that the Bank of Korea may cut rates by up to 75 basis points in the second half of the year.
Large corporations, judging this as an optimal time for fundraising, are also lining up to issue corporate bonds. Naver has returned to the bond market after three years, and in the securities industry, Samsung Securities is preparing to issue up to KRW 400 billion in corporate bonds following Mirae Asset Securities. Samsung Securities plans to use the funds raised from bond issuance to repay corporate commercial papers (CP) and short-term bonds issued at high interest rates in the second half of last year.
An IB industry official said, "As market interest rates fall, the warmth in the corporate bond market, which was concentrated on AA-rated bonds, is spreading to A-rated bonds," and predicted, "Tens of trillions of won will flow into the public corporate bond market in January alone." However, the official also noted, "There are latent risk factors such as project financing (PF) defaults, so it will be difficult for construction company bonds or non-investment grade corporate bonds rated below A to raise large-scale funds."
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