By Kim Jae-won
Local lenders rushed to issue foreign currency bonds this month, securing quantities of foreign denomination in an effort to brace against the uncertain economic conditions ahead, industry sources said Thursday.
Shinhan Bank and the Korea Development Bank (KDB) both issued foreign exchange bonds worth hundreds of millions of dollars, to reserve as much foreign currency as possible. The global economy must overcome the unresolved euro zone debt crisis and effects from the U.S. fiscal cliff.
“We issued the bonds in advance to set aside foreign exchange for this year. To pay back our debt which has maturities due in the first quarter is another reason why we hurried,” said Kim Jae-wook, a Shinhan manager.
On Jan. 23, Shinhan raised $350 million in New York by selling dollar-denominated bonds at an interest rate of 1.27 percentage points above yields on U.S. Treasuries with a 5.5-year maturity. The bulk of the bonds were sold to Asian investors, followed by those from Europe and the United States, the lender said.
The third-largest bank by assets in Korea said it could issue the bonds with relatively better terms by targeting interest rates rather than size. The bank expected that it could be a benchmark for other local banks, which will also raise foreign currencies through bonds later this year.
The state-run KDB said that it raised $1 billion by issuing dollar-denominated bonds earlier this month, in order to help local companies finance their operations overseas.
The bank said that proceeds from the debt sale will be used to provide funds to local exporters, to enable them to compete with their global counterparts. The majority of the bonds were sold to investors from the Middle East, China and the United States, including blue-chip bond company PIMCO, it added.
However, government officials and experts worry about the side effects of the foreign exchange bond issuance rush, saying the incoming dollars may strengthen the local currency further. The Korean won is gaining ground against the U.S. dollar and the Japanese yen at a fast pace due to easing monetary policies from the U.S. and Japan.