Will corporate bond market heat up?

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By Lee Kyung-min

The financial authorities and market participants are paying keen attention as to whether the corporate bond market, which has been depressed amid the continued spread of COVID-19, will pick up steam in the coming week, ahead of the planned 740 billion won ($610 million) corporate bond issuance.

Of particular interest is how many of the bonds will be bought by the authorities poised to spend up to 20 trillion won to buy the benchmark three-year AA- grade, put in place to limit the virus-triggered liquidity shortage in the financial sector.

Data from the Financial Supervisory Service (FSS) showed Friday that four firms are scheduled hold pre-sale biddings next week.

Of the three scheduled for April 13, Lotte Chilsung Beverage, a subsidiary of Lotte Group, plans to offer two-year bonds worth 50 billion won and three-year bonds worth 100 billion won.

Hanwha Solutions, a chemical and energy arm of Hanwha Group, plans to put up three-year bonds totaling 210 billion won.

Hyundai Autron, an electronic control device developer under Hyundai Motor, plans to issue three-year ones worth 30 billion won and five-year ones worth 20 billion won.

Of the 330 billion won in bonds set to be issued by Kia Motors, three-year ones will be 250 billion won, followed by five-year ones at 30 billion won and seven-year ones for 50 billion won. The subsidiary of Hyundai Motor will hold the bidding, April 14.

The bond market stabilization fund set up and operated by the Financial Services Commission (FSC) will enter bids with Kia, Lotte Chilsung and Hanwha, all of whose bonds are graded above AA- with a three-year maturity.

Expectation is growing from the firms that the possible overshooting of the planned amount could lead to them selling more bonds than initially planned, a way to secure greater liquidity needed for stable management.

A cause for hope is drawn from Lotte Foods, a confectionery subsidiary of Lotte Group, which increased the total amount issued to 100 billion won, after the firm's initial plan to issue 70 billion won AA bonds with three-year maturity drew 140 billion won from potential buyers, April 6.

Many firms are desperate for a similarly optimistic scenario but it remains to be seen whether the rapidly deteriorating corporate bond market will return to its previous level of vibrancy given the virus has yet to be fully contained.

According to the Korea Financial Investment Association (KFIA), the corporate bonds issued totaled 5.1 trillion won in March, down from 7.4 trillion won from the month before.

The trading volume in the same period also shrank to 12.4 trillion won, down 6.5 trillion won.

Whether the offered amount would be overshot will help set the tone in the market under much distress due to new coronavirus, according to Seoul National University economist Kim So-young.

“Concerns have grown over a possible jump in corporate defaults, an inevitable course of action if firms fail to find buyers. Hopes are high that Lotte Foods' case will not remain a one-off, isolated case. We have to see how the market reacts and whether the investment sentiment shows any signs of recovery,” he said.