Lotte Foods Co. will likely be the first beneficiary of South Korean government’s 20 trillion won ($16.3 billion) worth bond market stabilization fund that was announced late last month to help ease liquidity shortage in the debt financing market amid virus panic.
Lotte Foods on Monday embarked on book-building for its offering of three-year unsecured corporate bonds worth 70 billion won, scaled back from initial 150 billion won to 200 billion won. The coupon on the AA0 debt is offered at 40 basis points above the market rate. As of April 2, the yield on three-year unsecured corporate bond rated AA0 was 1.662 percent. The deal is led by Shinhan Investment Corp., Samsung Securities Co., NH Investment & Securities Co.
Since half of the sum would be purchased from the bond stabilization fund, the offering is expected to be fully sold, said Kim Sang-hoon, chief asset management strategist at Shinhan Investment.
The government has set up a 20 trillion won bond market stabilization fund late last month to bolster liquidity in the local financial market and fend off a credit crunch. Market observers anticipate the outcome of Lotte Foods’s bond sales would serve as the barometer of the market’s response to the government’s measures and set the mood for the upcoming corporate debt sales.
Some argue that the government should take more aggressive measures, including active use of primary collateralized bond obligations (P-CBOs) as many businesses face immediate credit crisis.
An unsecured three-year corporate bond with BBB+ rating yielded 5.206 percent and AA- rating debt 3.267 percent on Thursday. Their spread against three-year government bond has widened 21.3 basis points and 36.6 basis points, respectively, from the levels in end of February.
The P-CBO allows firms with low credit ratings to borrow money at low costs through state payment guarantee. The government has set up 6.7 trillion won for the program.
By Ahn Gab-seong and Cho Jeehyun
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