Bloomberg News

Bond Sales in Korea to Reach Record in 2012 as Europeans Retreat

January 03, 2012

Jan. 3 (Bloomberg) -- Foreign-currency bond sales by South Korean companies will climb to a record in 2012 as European banks, facing an escalating sovereign-debt crisis at home, pare back on their lending, the market’s biggest underwriters predict.

Issuance may rise to $31 billion this year, the most in data compiled by Bloomberg which dates back to 1999, from $27.5 billion in 2011, according to the average estimate from Bank of America Corp., HSBC Holdings Plc and Royal Bank of Scotland Plc, last year’s first-, second- and sixth-largest arrangers. The forecast exceeds the five-year average by more than 47 percent, according to data compiled by Bloomberg.

Fewer loans from European banks as borrowing costs surge to the highest level in two years may prompt Korean borrowers to raise funds in the bond market. Investors demand 303 basis points more in yield to own Korea dollar-denominated debentures rather than Treasuries, compared with a spread of 419 basis points on dollar-denominated bonds globally, according to JPMorgan Chase & Co’s indexes.

“Loans from European lenders are expected to contract due to those banks’ recapitalization concerns,” Rhee Sangho, the head of debt capital markets at the Seoul-based brokerage unit of HSBC, said in a Dec. 21 interview. “If such concerns linger, Korean companies may look to the bond market or other direct funding sources in 2012.”

The large amount of debt that needs to be refinanced in Korea will also help bolster bond sales, according to Shin Jinwook, the head of Korean capital markets at the Seoul-based unit of Bank of America Corp.

Under Pressure

Some $26.6 billion of foreign-currency bonds will mature in the coming 12 months, a 96 percent increase from the $13.6 billion that were due within 12 months at the end of 2010, the Korea Center for International Finance said in a Dec. 6 report, citing data compiled by Bloomberg.

Syndicated loans to Korean companies from European lenders slid 40 percent to $469 million in the last three months of 2011 from $780 million in the fourth quarter of 2010, data compiled by Bloomberg show.

Societe Generale SA and BNP Paribas SA accounted for no syndicated loans last quarter, compared with $72 million in the same period of 2010, data compiled by Bloomberg show. French banks top the list of Greece’s creditors with $57 billion in exposure to private and public debt at the end of March, according to the Bank for International Settlements based in Basel, Switzerland.

European banks, under pressure from regulators to bolster capital, are selling some of their fastest-growing businesses and exiting markets, including structured and leveraged lending in Asia, to raise funds. The European Banking Authority last month ordered the region’s financial firms to raise 114.7 billion euros ($148 billion) of additional capital in order to help withstand losses on Greek bonds.

‘Cut and Run’

“They will reduce loans, they have to,” Alan Roch, Royal Bank of Scotland’s Singapore-based head of bond syndication, said in a Dec. 14 phone interview. “One thesis is that the European banks will withdraw from the loan market completely, cut everything they can cut and run back home.”

The retreat by European banks helped Korean lenders boost their share of the market for arranging loans in the nation to 33 percent in 2011 from 18 percent in 2010.

“Korean bond sales will get a boost this year,” Bank of America’s Shin said. “Borrowers may seek to issue more bonds if foreign banks reduce loan financing.”

Bank of America helped arrange the most bond sales last year, underwriting $2.7 billion of deals for a 9.7 percent market share. The Charlotte, North Carolina-based bank also managed the most issues, Bloomberg data show. HSBC moved up five spots to the No. 2 position while Royal Bank of Scotland rose to sixth from 10th after helping to arrange deals including Korea National Oil Corp.’s $1 billion offering in October.

Overseas Expansion

A growing appetite for cross-border acquisitions by Korean companies, particularly in the energy sector, will also boost bond sales, according to the Korea Center for International Finance report. Korea National Oil, the state-held energy developer that sold the third-most amount of international bonds last year, said it may spend as much as $4 billion this year on buying overseas oil assets to expand production.

Doosan Infracore Co., the nation’s largest construction equipment maker, announced in November it will raise $2.2 billion through bonds and loans to refinance the purchase of its Bobcat unit, bought from Ireland-based Ingersoll-Rand Co. in 2007 for $4.9 billion. HSBC is advising Doosan on the refinancing plan, under which $350 million has already been raised via a bond sale.

“Thanks to preemptive measures by the Korean regulator and the collective effort by banks to secure liquidity in foreign capital, it’s highly unlikely we’ll have the same degree of pain as the Lehman crisis,” HSBC’s Rhee said.

--With assistance from Andrew Monahan in Hong Kong. Editor: Katrina Nicholas, Shelley Smith

To contact the reporter on this story: Taejin Park in Seoul

To contact the editor responsible for this story: Shelley Smith at

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