Korean companies are struggling to sell their debt as investors anticipate higher interest rates.
Despite a good credit rating, Daewoo E&C was forced to issue primary secured bonds (P-CBOs) last month.
This is the first time the construction company has sold P-CBOs, which are asset-backed securities backed by the Korea Credit Guarantee Fund. They are normally intended for small businesses with a low credit rating.
SK REIT, which owns office buildings in downtown Seoul and 116 SK gas stations, attempted to issue 96 billion won ($67 million) in corporate bonds but failed to managed to attract institutional investors even while offering an annual interest rate of 5.1%.
“Institutional investors appear to be on the sidelines as they expect bond prices to fall with the further rise in interest rates,” said an official at the asset management firm who requested the release. anonymity.
Korean companies are struggling to raise funds following recent interest rate hikes by the US Federal Reserve.
With a recession increasingly likely and bond values falling due to higher rates, investors are reluctant to lend.
According to the Financial Monitoring Service, corporate bond issuance by non-financial corporations in August fell 59.3 percent in one month to 1.3 trillion won.
Businesses with lower credit ratings have more difficulty.
Only 12% of bond sales in August were made by companies rated AA or lower, compared to around 23% in July.
On Thursday, the yield on a three-year AA bond was 5.378%, a sharp increase from 2.46% on Jan. 3.
The 10-year US Treasury yield briefly rose above 4% on Wednesday before stabilizing at 3.736% after the Bank of England’s intervention in the bond market.
The rise in interest rates on US Treasuries is reflected in interest rates on Korean corporate bonds.
There are fears of a major panic comparable to the “great bond market massacre” of 1994, where investors around the world lost more than $1 trillion after bond values plummeted when US Federal Reserve Chairman Alan Greenspan raised interest rates.
The Korean government tried to deal with market volatility by announcing an emergency bond buyback of 2 trillion won.
Rates “stabilized quickly after Wednesday’s government intervention,” said Lim Jae-kyun, an analyst at KB Securities. “However, this is not enough to reverse the situation in the long term as there remain external uncertainties, including the strong reaction of the US Federal Reserve and the instability of the UK financial market.”
Yoo Jeong-joo, head of the Federation of Korean Industries’ corporate planning team, warned that the Korean government’s frequent intervention in the bond market could send the wrong signal to global investors.
“If skepticism about the ability of Korean companies to service their debt starts to spread, it could lead to a catastrophic crisis in the bond market,” Yoo said.
BY KIM DO-NYUN, LEE HO-JEONG [[email protected]]