'Construction Companies and BBB-rated Firms Too'... Corporate Bond Issuance Surges as Interest Rates Fall

SK, Samsung C&T, S-Oil and Others Prepare Trillions in High-Grade Bond Issuance
Funding Concentrated in August and September to Avoid Interest Rate Uncertainty
Non-Investment Grade Firms Also Secure Lowest Interest Rates in Two Years
Bond Investment Demand Remains Strong Amid Stock Market Volatility

As market interest rates decline and the vacation season ends, large corporations are resuming corporate bond issuance. Leading companies such as SK, which is pursuing governance restructuring, and Doosan Enerbility have lined up to issue corporate bonds. Construction companies and BBB-rated firms, which had difficulty raising funds, are also securing liquidity through bond issuance.

According to the investment banking (IB) industry on the 22nd, SK, the holding company of SK Group, is issuing corporate bonds worth up to 450 billion KRW, with KB Securities and SK Securities as lead managers. In the demand forecast (bidding) conducted the previous day to issue bonds worth 250 billion KRW, investment funds exceeding 1 trillion KRW poured in. Thanks to the overwhelming demand, it is known that the bond issuance will be increased to the maximum limit.

SK has raised funds again three months after issuing corporate bonds worth 380 billion KRW in May. Amid the recent suspension of public bond issuance by major affiliates during the group’s governance restructuring process, the maturity of borrowings is coming due one after another, prompting refinancing efforts.

Doosan Enerbility, which plans to spin off Bobcat and transfer it to Doosan Robotics, is also pushing to issue corporate bonds worth up to 150 billion KRW. It is securing refinancing funds again five months after raising funds in the public bond market in February.

Securities Firm MTS Corporate Bonds. Photo by Jinhyung Kang aymsdream@

AA-rated or higher quality companies such as Samsung C&T, POSCO International, S-Oil, Hyundai Steel, GS EPS, and KB Securities have also selected lead managers to issue corporate bonds one after another. Subordinated bond issuance by non-life insurers such as Hyundai Marine & Fire Insurance, Lotte Non-Life Insurance, and Meritz Fire & Marine Insurance is also continuing. Although subordinated bonds have relatively high issuance rates, all or part of the issuance amount can be recognized as capital. For this reason, issuance continues to improve insurers’ Risk-Based Capital (RBC) ratios.

A corporate bond market official said, "With expectations of a policy rate cut, corporate bond yields have fallen along with government bond yields, providing companies with an opportunity to secure liquidity at low interest rates," adding, "Companies are increasing bond issuance at the end of August and early September to avoid interest rate uncertainties after September." In fact, issuance rates for some high-quality bonds have even fallen below the base rate.

Construction companies, which had difficulty issuing bonds, are also succeeding in issuing corporate bonds one after another. Lotte Construction and SK Ecoplant recently succeeded in issuing public bonds worth 150 billion KRW and 260 billion KRW, respectively. Companies that had difficulty raising funds due to concerns about project financing (PF) defaults, such as Korea Land Trust, have also succeeded in bond issuance.

Thanks to individual investors’ demand for high-interest bonds, bond issuance by low credit rating companies is also active. Recently, SK Shipping and Kolon, both BBB+ rated, issued private bonds at interest rates in the 4% and 5% range, respectively. Private bonds are bonds issued to specific investors without public offering procedures, unlike public bonds issued to unspecified investors through securities registration and demand forecasting processes.

Hansol Technics, which has the same rating, is preparing to issue public bonds. E-Land World, rated BBB, issued private bonds worth 30 billion KRW with a 1 year and 6 months maturity at an interest rate in the 6% range. This is the first time in about two years since September 2022 that E-Land World has successfully issued bonds at a 6% interest rate.

An IB industry official said, "As the yen carry trade unwinds and stock prices fall, individual investors’ demand for high-interest bonds is increasing," adding, "Non-prime companies such as construction firms and real estate trust companies, which previously had limited investment demand, are also succeeding in securing liquidity through bond issuance."

The boom in the bond issuance market is expected to continue for the time being. Market interest rates have fallen to their lowest level in two years, reflecting the policy rate cut, and demand for bond investment remains robust. A corporate bond market official said, "The amount of corporate bonds issued or scheduled to be issued from early August to mid-September amounts to trillions of KRW," adding, "As interest rates have fallen to their lowest level of the year, corporate demand for bond issuance is expected to continue for the time being."