S. Korea issues $1.5 billion sovereign debt at record low rates

2019.06.13 14:40:44

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The South Korean government bumped up its new U.S. dollar-denominated sovereign offering to this year’s maximum cap of $1.5 billion due to record demand which also helped pricing at lowest-ever rates.

The Ministry of Strategy and Finance said on Thursday that the new debt designed to build up ammunitions for foreign exchange stabilization was issued in $500 million in 5-year green and sustainability bonds and another $1 billion in 10-year straight bonds in New York, the United States, on Wednesday, local time.

The 2024 note carried a coupon rate of 2.0 percent and 2029 paper note 2.5 percent.

The 5-year bond was priced at a yield of 2.177 percent, 30 basis points over the U.S. Treasury on the same maturity, and 10-year bonds at 2.677 percent, 55 basis points over matching bonds. The premium has come down from previous record-low yield of 2.871 percent in $1 billion offering in 2017. The premium is 2.5 basis points lower than green bonds that have been issued recently by Hong Kong with higher credit rating than Korea.

The finance ministry said that the spread for the 10-year notes is also equal to record low 55 basis points in 2017.

The offering comes as the government aims to refinance $1.5 billion debt that was repaid upon maturity in April, this year.

The finance ministry had planned to issue $1 billion notes but scaled up to $1.5 billion as demand reached $6 billion. It was also able to lower the spread by up to 25 basis points from its guidance of 55 basis points for 5-year bonds and 75 basis points for 10-year bonds.

Central banks and sovereign wealth funds purchased 49 percent of the new debt, up 16.5 percent from the sale in the previous year, the ministry said. European investors highly interested in green bonds accounted for 25 percent of the debt sale this year, up from 12 percent last year.

The ministry said that the debt offering has reaffirmed foreign investors’ confidence in the Korean economy at a time when there have been growing uncertainties due to intensifying trade war between the U.S. and China. The successful debt sale has also led Korea to expand its foreign reserves, allowing more capacity to deal potential external shocks in the future.

The new debt issuance at record low rates is also expected to bring down overall foreign exchange borrowing costs for Korean entities as sovereign debt yield serve as a benchmark rate.

By Sohn Il-seon and Lee Eun-joo

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