Virus fear dampens corporate bond market
A lobby of Korea Financial Investment Association in Seoul / Korea Times file
By Lee Kyung-min
Market participants are paying keen attention as to whether corporate bonds will find enough buyers in a market that is still depressed amid the continued spread of the COVID-19 pandemic, Wednesday.
The interest comes as some firms saw their corporate bond issuance plan undershoot the offered amount early this week, fanning concerns that many others could find it difficult to secure funds needed for stable management.
The lackluster investor sentiment is prevalent here as many institutional investors became reluctant in choosing the traditionally solid investment following the virus spread and amid growing fears of corporate credit downgrades. This has left the already struggling firms all the more vulnerable to possible defaults.
Also to be seen is how many bonds will be bought by the authorities as part of a relief package worth 20 trillion won ($16.4 billion), mostly executed by buying the benchmark three-year AA- grade bonds, put in place to limit any virus-triggered liquidity shortage in the financial sector.
According to the Korea Financial Investment Association (KFIA), corporate bonds issued by four firms in March failed to find enough buyers in pre-sale bidding. Of 210 billion won in bonds put up by Hanwha Solutions, a chemical and energy arm of Hanwha Group, Monday, only 60 billion won worth, just 28 percent, found buyers.
Hanwha was among several firms that offered a combined 740 billion won in bonds Monday and Tuesday alongside Lotte Chilsung Beverage, a subsidiary of Lotte Group, Hyundai Autron, an electronic controls device developer under Hyundai Motor and Kia Motors.
Kia was the only one that saw demand overshoot the offer after 720 billion won worth of bids were placed, more than double 330 billion won on offer.
Between today and tomorrow, 770 billion won in corporate bonds will be offered by Hotel Shilla, confectionery maker Orion, SK Energy, GS and Poongsan, a non-steel metal manufacturer.
Of two firms whose pre-sale bidding is scheduled for today, Hotel Shilla plans to offer 150 billion won, out of which 110 billion won will be three-year bonds.
Orion will put up 70 billion won in three-year bonds.
Of three firms scheduled for Friday, SK Energy will offer 300 billion won, of which three-year bonds will account for 200 billion won, followed by 40 billion won in five-year bonds and 60 billion won in 10-year bonds.
GS will offer three-year bonds worth 200 billion won and Poongsan, three-year bonds worth 500 billion won.
Whether the offered amount will undershoot will be determined by market sentiment, which is notably sluggish compared to last year.
According to Korea Securities Depository (KSD), the volume of corporate bonds issued dropped in the first three months of 2020, due to the new coronavirus pandemic.
In the January-to March-period, a total of 15.9 trillion won worth of corporate bonds were issued, down 11.7 percent from 18 trillion won a year earlier.
The yield on the three-year unsecured AA- grade corporate bonds stood at 2.126 percent as of Tuesday, the highest since last May.
High yields not only mean a drop in the bond price but also a widening credit spread, the difference in the yield between corporate and government bonds with the same maturity.
The spread between corporate and three-year government bonds stood at 113 basis points, hitting a 10-year high compared to March 2010.
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