The quick cooling in the debt market amid supply glut has added woes for Korean Inc. in fund-raising on top of bearish stock market.
According to sources from the investment banking industry on Thursday, even investment-grade companies had to scale back their offering due to tepid response.
Korean Air Lines Co. with a BBB+ rating offered total 170 billion won ($147 million) worth debts in dual tranches on Wednesday – 90 billion won in two-year and 80 billion won in three-year maturities, but ended up selling less than half - 45 billion won and 12 billion won of respective bonds due to the low demand.
The offering was undersubscribed by around 60 percent even the company provided fixed yields of 3.3 percent for the two-year debts and 3.7 percent for the three-year bonds.
Demand for corporate bonds has quickly soured since September from frenzied appetite in earlier part of the year despite two rate cuts by the central bank, largely because of supply concerns.
The three-year government bond yield that was as low as 1.093 percent on Aug. 19 was at 1.579 percent as of Friday midday, well above the 1.25 percent benchmark rate following the second cut in October.
The yield curve shot up even as the policy rate hit the historic low from the latest cut due to oversupply. To finance another supersized budget in 2020 amid reduced tax revenue, the government alerted that it could issue maximum 130.6 trillion won debt next year – 60 trillion won in new issues and the rest in rollover.
In October alone, government and corporate debt issues reached 63.7 trillion won, an increase of 10.8 trillion won from a month earlier. Outstanding issues reached 213.7 trillion won, the largest-ever in monthly balance.
The oversupply has weighed down on the prices.
The A+ rated bonds yielded 2.081 percent Friday, jumping from 1.626 percent on Aug. 16. The debt yield and price moves in the opposite direction.
Amid tepid market conditions, Hanwha Engineering & Construction (E&C) with a rating of BBB+ scaled down its debt offering after around 9 billion won worth notes were left unsold in its previous offering. Even the nation’s biggest casino operator Paradise rated A+ ended up selling just a half of its offering of 100 billion won worth three-year bonds. Last month, Gunjang Energy with an A+ rating also saw 45 billion won worth five-year debts left unsold although it fully sold its three-year notes. The unsold bonds fall under the responsibility of the underwriters.
By Kang Woo-seok and Choi Mira
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]