Local companies face difficulties in issuing dollar bonds

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By Anna J. Park

Korean companies' planned dollar-denominated bond sales are being canceled during the second quarter, reflecting the global bond market's growing anxiety and uncertainty over geopolitical threats as well as the U.S. Federal Reserve's quantitative tightening plans.

Mirae Asset Securities was this year's first such case among local companies that had to withdraw plans of issuing dollar bonds late last month, due to worsening investor sentiment and market conditions.

During the bond sale process, the Seoul-headquartered brokerage company suggested its final pricing guidance (FPG) of 155 basis points over three-year maturity Treasury securities for investors in Asia and Europe, following its initial pricing guidance (IPG) of 165 basis points. Yet, the company had to cancel the bond sales in the end, as some investors decided to back out amid market volatility.

“An increased volatility over global interest rates as well as geopolitical concerns in Ukraine have both expanded market anxieties, intimidating investor sentiment. The company decided to delay the issuance of $300 million dollars in bonds,” an official from Mirae Asset Securities explained.

The dollar bond sale was planned to redeem the company's previous dollar bonds of $300 million, the maturity date of which is due next month. Despite the cancellation of the dollar bond issuance this time, the company said it has no problems with redeeming the previous bonds.

Following the failure of Mirae Asset's dollar bond sale, KB Kookmin Card and Busan Bank also decided to delay their planned dollar bond issuance. In particular, Busan Bank aimed to issue ESG-principled dollar-denominated bonds, the first time for the regional bank to sell bonds in the global market in four years, but it could not overcome the hostile market sentiment.

Sales of foreign currency-denominated bonds by local companies had difficulties during the first quarter as well. Industrial Bank of Korea (IBK) had to delay its pricing process for its Kangaroo bond ― the state-run bank's Australian dollar-denominated bond issuance of $400 million ― for about a week due to deteriorating market conditions. But unlike the situation in the second quarter, no company canceled its bond sale plans in the previous quarter.

During the past two weeks, only two companies ― Korea Water Resources Corporation (K-water) and the Korea East-West Power Corporation ― have succeeded at their planned dollar bond sales. Both companies not only have AA credit ratings, but also showed effective promotions of their ESG-principled green bonds while offering reasonable IPGs.

Market watchers say, unless companies receive AA-level credit ratings which would estimate their bonds as safe assets, local firms would be facing a difficult phase in their dollar bond sales when the market volatility is high like now.

The three companies that delayed their dollar bond issuances are expected to resume their halted bond sales as early as during the second half, as they will have to start the process from scratch again.