Korea’s money market still jittery due to glut in public and bank bonds

2022.11.21 11:11:01 | 2022.11.21 15:11:05

KEPCO Building이미지 확대

KEPCO Building



South Korea’s bond market remains jittery despite some easing in the bottleneck in corporate and commercial papers through state-led relief programs, with borrowing rates on deficit-ridden Korea Electric Power Corp. (KEPCO) falling from their peak of 5.9 percent.

The state power monopoly on Thursday sold two-year bonds worth 460 billion won ($341.5 million) at a coupon rate of 5.6 percent and three-year papers worth 100 billion won at 5.7 percent, according to the financial investment industry. The rates eased from 5.99 percent priced for the two-year offering on Nov. 8 to imply improvement in the money market, said Kim Myung-kuk, an analyst at HI Investment & Securities.

“Rates have come down since KEPCO have been ordered to refrain from raising funds from the debt market, while the Bank of Korea is expected to keep rate increases in 25 basis points in upcoming meetings,” added Kim.

But the conditions for corporate issuers remain poor as the bulky state utility has already sucked up most of the available funds.

The utility company is expected to report a loss of 30 trillion won this year. It has to rely on the debt market to sustain operations because there’s not much the government can do to help KEPCO. It has issued 2.6 trillion won worth so far this month and 2.41 trillion won monthly on average during the first 11 months of this year.

“Investors tend to take more interest on high-graded bonds like KEPCO if they continue to be sold in the market,” an unnamed official from the investment banking sector said. “Naturally, that means other companies will have to offer higher rates in order to attract investors.”

Top-tier corproate issuers like Samsung and Lotte are paying interests of 7 percent to 8 percent for their debts. Samsung Heavy Industries Co. sold a two-year bond worth 50 billion won at a coupon rate of 7.1 percent on Nov. 15. Lotte Busan Hotel on Nov. 15 and 17 raised a total 40 billion won at coupon rates of 8.5 percent each.

Generally, companies turn to the commercial paper (CP) market if they are looking for short-term funds, less than one year. Companies raised on average 800 billion won weekly this year, compared with 1.6 trillion won last year, according to KB Securities Co.

Banks have also been been inundating the debt markt to keep up with the corporate loan demand. As of Nov. 18, lenders offered a total of 186.6 trillion won worth of debts, compared with 183.2 trillion won for the whole of last year.

Some property asset-back commercial paper project financing has been trading at a rate of around 20 percent. An ABCP backed by GS Engineering & Construction Co. traded around rate of 20.3 percent to 21 percent.

An analyst at Korea Investment & Securities urged the government to offer more support to state-run banks to help them to raise enough ammunition to ease the market crunch.

Authorities have been meeting regularly over the weekend to keep watch over the capital market woes.

Minister of Economy and Finance Choo Kyung-ho, Bank of Korea Governor Rhee Chang-yong, Financial Services Commission Chairman Kim Joo-hyun and Financial Supervisory Service Governor Lee Bok-hyun have been meeting every week since last month to discuss ways to ease the jittery bond market triggered by the default of a Legoland theme park developer.

The authorities recently asked banks to refrain from selling products that bear higher interest rates to curb rise in borrowing costs.

By Cha Chang-hee, Kim Myung-hwan and Kyunghee Park

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