Last Year's IPO Performance Plummeted 73% Year-on-Year... Corporate Bonds Booming

2023 Corporate Direct Financing Performance

Last year, the scale of fundraising through initial public offerings (IPOs) in the Korean stock market declined by 73% compared to 2022 amid a bearish market. As more companies postponed new investments, the amount raised through paid-in capital increases by issuing new shares also decreased by more than 15%. On the other hand, the corporate bond issuance market performed well as investors showed a clear preference for corporate bonds, considered safe assets.

Direct Financing via Stocks and Corporate Bonds Up 20.1%

According to the Financial Supervisory Service on the 24th, the total amount of public offerings of stocks and corporate bonds in 2023 was KRW 245.6682 trillion, an increase of KRW 41.0935 trillion (20.1%) compared to the previous year. The ups and downs in the stock market were offset by the strong performance of the corporate bond issuance market.

There were 184 public stock offerings, through which companies raised a total of KRW 10.8569 trillion. This is a decrease of KRW 11.0839 trillion (50.5%) compared to the previous year’s 174 offerings totaling KRW 21.9408 trillion. Both IPOs and paid-in capital increases declined.

The number of IPOs was 119, up by 4 from 115 the previous year, but the amount raised was KRW 3.3515 trillion, down KRW 9.7518 trillion (73.0%) from the previous year. Only five new listings were made on the KOSPI (Korea Composite Stock Price Index) market, raising KRW 9.962 billion. Meanwhile, 114 companies entered the KOSDAQ market, raising KRW 2.6035 trillion.

Last year, companies such as HD Hyundai Samho Heavy Industries, Market Kurly, K-Bank, Oasis, and Seoul Guarantee Insurance postponed their listings due to the market conditions making it difficult to receive fair valuations. The Financial Supervisory Service explained, "The delay in listing schedules of large-scale companies mainly caused the average public offering size per case (KRW 30.2 billion) to drop significantly compared to KRW 116.1 billion the previous year."

Demand for paid-in capital increases, where companies issue new shares to raise funds, also declined. The number of paid-in capital increase cases was 65, up 6 from 59 the previous year, but the amount raised was KRW 7.2572 trillion, a decrease of KRW 1.3321 trillion (15.5%) from the previous year. By demand source, KOSPI accounted for KRW 5.2659 trillion, KOSDAQ KRW 1.6928 trillion, KONEX KRW 31.4 billion, and unlisted companies KRW 267 billion. The Financial Supervisory Service noted, "This is the result of reduced demand for facility funds due to a deteriorating investment environment amid economic sluggishness." Some point out that during periods of stock price decline, the attractiveness of paid-in capital increases diminishes because the issue price falls, requiring companies to issue more shares to raise the same amount of funds. An increase in the number of shares means dilution of equity value.

Risk Aversion... Corporate Bond Issuance Amount Up 28.6%

Corporate bond issuance in the same year totaled 4,288 cases amounting to KRW 234.8113 trillion. This represents an increase of KRW 52.1774 trillion (28.6%) compared to 3,382 cases and KRW 182.6339 trillion the previous year. The rise is attributed to increased interest in corporate bonds, considered safe assets, especially high-grade AA-rated bonds. As of the end of 2023, the total outstanding corporate bonds amounted to KRW 641.3262 trillion, up KRW 17.8165 trillion (2.9%) from KRW 623.5097 trillion at the end of the previous year.

The Financial Supervisory Service stated, "Due to prolonged Russia-Ukraine war, inflation, and other uncertainties, investors’ risk-averse tendencies strengthened, increasing the proportion of AA-rated or higher high-grade bonds from 75.5% to 79.4%." It added, "Concerns over interest rate hikes reduced demand for medium- to long-term bonds, raising the share of short-term bonds under one year from 1.0% to 4.7%. In terms of fund usage, demand for facility funds decreased, and issuance was mainly for debt repayment purposes."

Financial bonds were issued in 2,810 cases totaling KRW 174.128 trillion, an increase of KRW 36.0952 trillion (26.1%) compared to 2,209 cases and KRW 138.0328 trillion the previous year. Financial holding company bonds decreased by 19.2% compared to the previous year, while bank bonds and other financial bonds increased by 38.1% and 24.9%, respectively. The Financial Supervisory Service explained, "With the maturity of high-interest deposit products and increased loan demand, bank bond issuance surged, raising the share of bank bonds from 37.7% to 41.3%."

Asset-backed securities (ABS) issuance also increased to 1,032 cases totaling KRW 17.4024 trillion, up KRW 3.1743 trillion (22.3%) from 848 cases and KRW 14.2281 trillion the previous year. However, the issuance scale of primary collateralized bond obligations (P-CBOs) was 74 cases totaling KRW 4.8995 trillion, down 2.3% from the previous year. P-CBOs are a type of ABS issued with credit enhancement from institutions like the Korea Credit Guarantee Fund to facilitate smooth funding for small and medium-sized enterprises.

CP and Short-term Bond Issuance Down 18.5%

Regarding commercial paper (CP) and short-term bond issuance, the total was KRW 1,263.9849 trillion, down KRW 286.1226 trillion (18.5%) from KRW 1,550.1075 trillion the previous year. CP issuance amounted to KRW 408.4856 trillion, a decrease of KRW 19.109 trillion (4.5%) compared to the previous year. As a result, the CP outstanding balance at the end of 2023 was KRW 198.3492 trillion, down KRW 14.4501 trillion (6.8%) from the previous year.

By segment, general CP was KRW 234.3956 trillion, real estate project financing (PF) asset-backed commercial paper (ABCP) was KRW 29.8261 trillion, and other ABCP was KRW 144.2639 trillion, decreasing by 0.7%, 0.2%, and 10.8%, respectively, compared to the previous year.

Short-term bond issuance amounted to KRW 855.4993 trillion, down KRW 267.0136 trillion (23.8%) from KRW 1,122.5129 trillion the previous year. Consequently, the short-term bond outstanding balance at the end of 2023 was KRW 66.3889 trillion, down KRW 6.5506 trillion (9.0%) from the previous year.

By segment, PF-AB short-term bonds were KRW 153.7552 trillion, other AB short-term bonds KRW 119.273 trillion, and general short-term bonds KRW 582.4711 trillion, decreasing by 13.6%, 12.0%, and 28.0%, respectively, compared to the previous year.