Korea’s state bond purchase program mostly benefits top investment grade issuers

2020.05.18 16:11:05 | 2020.05.18 16:11:28

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South Korea’s state-run bond purchase program aimed to help the corporate liquidity woes from virus crisis mostly benefited large companies, leaving lower-grade issuers struggling in debt financing.

Since the launch of bond stabilization fund of 20 trillion won ($16.2 billion) on April 6, 600 billion won went to invest in 11 issues.

Demand has picked up in the corporate debt market, but nevertheless restricted to papers rated AA or higher.

KB Securities found that more than half of 16 firms rated AA or higher sold new debt at yields of at least 10 basis points below their desired yield band.

The market for papers below the top investment grade remains cold.

Poongsan with an A0 rating, Daehan Steel with A-, Hana F&I with A- and Hanil Holdings with A+ were all priced at the top end of the desired yields. Hyundai Auto Electronics with a rating of A0 was the only company that was priced at 10 basis points or more lower than the top desired yields among the sub-rated firms.

Jeon Hye-hyun, a KB Securities analyst, said that companies with a rating of AA or higher are drawing sound demand from investors under the government’s 20-trillion-won worth fund program, but lower-rated firms that are excluded from the program are still struggling to find buyers.

By Ahn Gap-seong and Choi Mira

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