Short-term CP and short-term bonds as substitutes for maturity... Enhancing borrowing maturity stability
Preemptive liquidity secured to prevent difficulties if defaults expand
Ample investment demand confirmed... Judged 'timely' for fundraising
Domestic securities firms are lining up to issue corporate bonds. Not only large securities firms aiming to become mega investment banks (IBs), but also small and medium-sized securities firms have joined the corporate bond issuance parade. This is interpreted as a strategy to proactively secure liquidity in preparation for potential defaults related to real estate project financing (PF) and overseas commercial real estate.
Kim Ju-hyun, Chairman of the Financial Services Commission, Lee Bok-hyun, Governor of the Financial Supervisory Service, Seo Yoo-seok, Chairman of the Korea Financial Investment Association, Son Byung-doo, Chairman of the Korea Exchange, and other CEOs from the securities industry attended the "Securities Industry CEO Meeting" held last January at the Korea Financial Investment Association in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@
According to the investment banking (IB) industry on the 15th, recently Korea Investment & Securities, Hyundai Motor Securities, and Hanwha Investment & Securities have selected underwriters to issue corporate bonds. Korea Investment & Securities is expected to issue corporate bonds worth 400 billion to 800 billion KRW, while Hyundai Motor Securities and Hanwha Investment & Securities plan to issue bonds in the range of 150 billion to 400 billion KRW. The issuance amount will likely be determined flexibly based on the results of demand forecasting (bidding) targeting institutional investors.
Investment demand for securities firms’ corporate bonds has been confirmed to be sufficient. Previously, Mirae Asset Securities, KB Securities, Samsung Securities, and Yuanta Securities issued corporate bonds and raised several hundred billion KRW each. In most cases, institutional funds amounting to 2 to 5 times the planned issuance amount poured in during demand forecasting, enabling successful oversubscription and increased issuance beyond the initial target.
Mirae Asset Securities took the lead. In January, it conducted demand forecasting for a 300 billion KRW corporate bond issuance, and due to large-scale institutional funds, increased the issuance amount to 420 billion KRW. KB Securities issued a whopping 800 billion KRW worth of corporate bonds at once. The initial target was 400 billion KRW, but more than 1 trillion KRW of institutional funds flowed in. Samsung Securities also issued 200 billion KRW in corporate bonds around the same time, and due to overwhelming demand, increased the issuance amount to 400 billion KRW.
Following the large securities firms, small and medium-sized securities firms have also entered the corporate bond issuance market one after another. Yuanta Securities achieved success in corporate bond demand forecasting, followed by Hyundai Motor Investment Securities and Hanwha Investment & Securities announcing plans to issue corporate bonds. On the 6th, Yuanta Securities’ corporate bond demand forecasting attracted investment funds exceeding three times the planned issuance amount.
The reason securities firms are issuing corporate bonds one after another is interpreted as an effort to enhance funding stability. The strategy is to partially repay commercial paper (CP) and short-term bonds, which are major funding sources for securities firms, and replace them with relatively longer-term corporate bonds to improve the maturity structure of borrowings. An IB industry insider diagnosed, "A borrowing structure concentrated on CP and short-term bonds with maturities revolving every 1 to 3 months can cause serious liquidity problems in times of crisis."
There is also a purpose to proactively prepare for real estate PF and overseas commercial real estate defaults, as well as losses from Hong Kong ELS. If securities firms’ defaults or losses expand, it could become difficult to raise funds or the cost of funding could rise rapidly. It has been confirmed that as PF defaults expand, construction companies, some capital companies, and real estate trust companies are facing difficulties in raising funds.
Korea Land Trust recently conducted demand forecasting for an 80 billion KRW corporate bond issuance, but only 56 billion KRW of investment funds were received. Corporate bonds worth 24 billion KRW remain unallocated as they have yet to find buyers. Although the remaining bonds are expected to be absorbed through subscriptions by individual investors, uncertainty remains.
An IB industry insider said, "Securities firms’ profits significantly decreased last year due to large-scale provisions for PF defaults," adding, "It seems that now, before investors’ views on securities firms worsen further due to commercial real estate defaults and Hong Kong ELS losses, is seen as the ‘right time’ to issue corporate bonds at low interest rates."
A bond market official said, "Thanks to sufficient demand for corporate bonds at the beginning of the year, cases of BBB-rated companies with low credit ratings successfully raising funds are increasing," and predicted, "There are increasing attempts to proactively secure liquidity in preparation for expanding defaults by utilizing sufficient market investment demand, and this trend is expected to continue for some time."
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