Firms Face Hardship Attracting Funds
By Lee Hyo-sik
Staff Reporter
State-invested enterprises, banks and other financial companies are facing increasing difficulty in borrowing money from abroad on the deepening global credit woes in the wake of the demise of U.S. investment bank Lehman Brothers and insurance giant American International Group (AIG)'s worsening liquidity shortage.
The government's decision not to issue dollar-denominated foreign exchange stabilization bonds worth $1 billion last week has also made it more difficult for domestic firms to raise funds overseas.
The state-run Korea Development Bank (KDB) had initially planned to issue corporate bonds worth $1 billion this week after the government's issuance of sovereign bonds. But it decided to suspend the issue indefinitely as a result of deteriorating global financial market conditions and the withdrawal of the sale of currency stabilization bonds.
Korea Gas Corp. also wanted to raise $500 million by selling corporate bonds to foreign investors this month, but has postponed the issuance indefinitely, saying it will wait until international credit market conditions improve. Woori Bank and other domestic lenders have also shelved plans to bring in dollars from overseas.
The demise of Lehman Brothers, AIG's request for a liquidity injection from the Federal Reserve, and other unfavorable developments on Wall Street have exacerbated the ongoing global financial market turmoil, making investors dump stocks and other risky assets for cash. The risk-averse market sentiment has further tightened credit, making it almost impossible for Korean companies to raise money from foreign investors.
To bring in dollars through a bond issuance under current market conditions, they would have to pay much higher yields than in normal times.
LG Economic Research Institute (LGERI) economist Shin Min-young said it has become almost impossible for local companies to issue bonds and raise funds abroad amid the worsening global financial market turmoil.
``Lehman's bankruptcy, AIG's cash shortage and other negative developments in the U.S. have sent the global financial market into a tailspin. The ongoing market chaos will likely persist for the time being, creating unfavorable conditions for domestic firms seeking to secure money overseas,'' Shin said.
Furthermore, the government's failure to sell currency stabilization bonds last week hit financial institutions and companies seeking to raise money from international investors hard. Usually, the foreign exchange stabilization bond yield acts as a benchmark for locally issued corporate bonds overseas. But without a standard yield, it has become more uncertain and costly for banks to issue bonds abroad.
Last Friday, the government decided to suspend the issuance of foreign exchange stabilization bonds in New York as foreign investors demanded higher bond yields in the wake of continued international market jitters and increasing geopolitical risks surrounding North Korea.
It had planned to issue the bonds at a spread of below 200 basis points over U.S. Treasury yields, but investors asked for more than 210 basis points. The Ministry of Strategy and Finance had said it would try to issue bonds this week. But it will unlikely be able to do so on the deteriorating global financial market conditions.
``It turns out that the government should have issued sovereign bonds last week by accepting investors' demand for higher yields because market conditions have worsened since last week, following Lehman's bankruptcy,'' Shin of LGERI said.
He projected the government will have to wait much longer than it had expected for the issuance of the bonds as the market environment will be unlikely to improve any time soon.