New debt financing cost for Korean Inc. quickly building up on faster rate rises

2022.06.16 13:44:16 | 2022.06.16 15:55:48

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Debt financing cost for AA or higher investment-grade Korean issuers has shot up above 4 percent amid fastened rate increases, hardening companies of lower ratings.

In line with the spike in the government yields hovering at their highest levels in 10 to 11 years, corporate debt yield in AA grade has been rising in the same pace.

In April already, Lotte Chilsung Beverage issued three-year corporate bonds with AA ratings at 3.923 percent. Hotel Shilla and SK networks recently each priced their five-year bonds at 4.17 percent and 4.066 percent, respectively.

By midday Thursday, unsecured three-year corporate bond of AA- yielded 4.372 percent after breaking above 4 percent for the first time in 10 years on June 7.

Unsecured three-year bonds of BBB- yielded 10.208 percent amid little demand.

Corporate bond issuance thinned by 700 billion won from the previous month to 7.9 trillion won ($6.1 billion) in May. Institutional subscription for new offerings amounted to 2.195 trillion won, last month, off 145 billion won on year from 2.34 trillion won.

Companies in sub-investment grade are forced to turn to banks for new financing, bumping up debt issues by banks to meet corporate loan demand.

According to Koscom, the system manager of the Korea Exchange, debt issues by banks totaled 19.693 trillion won in May, a monthly record and nearly doubling 10.47 trillion won worth of issues in the previous month.

Meanwhile, individual investors are turning to bonds as the yields are higher than bank deposits.

By Kim Je-gwan and Susan Lee

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