Hyundai Heavy Industries Co. (009540), the world’s biggest shipbuilder, and Korean Air Lines Co. took advantage of record-low borrowing costs to raise 1.4 trillion won ($1.2 billion) in the bond market this month after the central bank cut interest rates.
The companies, along with Daewoo Shipbuilding & Marine Engineering Co., made up almost half the 4 trillion won of domestic bond sales in July, down 29 percent from last month and below the 12-month average of 4.8 trillion won, according to data compiled by Bloomberg. Three-year AA- rated corporate yields, the Korea Financial Investment Association’s benchmark, touched 3.37 percent this week, the least in data going back to 2000. U.S. corporate debt with an AA grade yields 2.13 percent, Bank of America Merrill Lynch indexes show.
Bond sales stalled in the first half of July before South Korea’s central bank unexpectedly reduced rates for the first time in three years on July 12, triggering almost 70 percent of the month’s offerings. The Bank of Korea is lowering borrowing costs to boost growth in Asia’s fourth-largest economy because of concern that Europe’s fiscal crisis will curb exports.
“Companies are gearing up for more bond sales to stockpile cash to get through the slowdown in the global and domestic economy,” Kim Min-Jeong, a credit analyst at KDB Daewoo Securities Co., said by telephone from Seoul yesterday. “The market is good for borrowers, though not so for investors, with yields hitting historically low levels.”
HSBC Holdings Plc and Goldman Sachs Group Inc. said the Bank of Korea will lower its 3 percent interest rate again by October after a government report yesterday showed the economy grew at the slowest pace in almost three years last quarter. Gross domestic product expanded 2.4 percent in the three months through June from a year earlier, less than the median 2.5 percent estimate of 15 economists surveyed by Bloomberg News.
The yield on benchmark five-year government bonds declined 44 basis points since July 1 to 2.98 percent today, set for the fourth monthly drop. Yields fell below the key interest rate on July 18 for the first time since October 2008. Forward rate agreements suggest a 50 basis-point rate reduction within six months, according to data compiled by Bloomberg.
Yields on three-year AA- rated corporate debt declined 42 basis points, or 0.42 percentage point, this month to 3.45 percent today, financial association data shows. KDB Daewoo’s Kim estimates yields will drop 10 basis points by the end of this quarter amid weakening growth. U.S. corporate yields fell 32 basis points this month, Bank of America Merrill Lynch data shows.
Hyundai Heavy raised 700 billion won this month in its biggest-ever debt offering, according to data compiled by Bloomberg. The company, based in the south-eastern coastal city of Ulsan, sold 300 billion won of three-year bonds priced to yield 3.23 percent and 400 billion won of five-year securities priced to yield 3.35 percent, the data show.
Hyundai Oilbank Co., a unit of Hyundai Heavy, also raised 300 billion won selling five-year notes.
Daewoo Shipbuilding offered 200 billion won of three-year notes priced to yield 3.52 percent and 300 billion won of five- year debt at a yield of 3.73 percent, the data show. Korean Air’s 150 billion won of three-year securities were priced to yield 3.58 percent, while 250 billion won of five-year bonds were sold to yield 3.98 percent, according to the data.
“As yields have fallen recently, we issued the bonds to raise and manage long-term capital more so than short-term funding,” An Wook Hyeon, a senior manager with Daewoo Shipbuilding (042660)’s finance team said by telephone today.
Hyundai Heavy spokesman Kim Kwang Kook and a spokesman for Korean Air, Cho Hyong Chol, weren’t immediately available to comment when called in Seoul today.
Doosan Infracore Co. and Korea South-East Power Co. led 770 billion won of issuance this week. The previous week, companies sold 2 trillion won of notes, the most since the last week of June, the data show.
Korea South-East, which holds the fifth-highest A1 rating from Moody’s Investors Service, the same as the sovereign, offered a record-low yield for its second 10-year bond offering in five months as expectations of another rate reduction boosted demand for longer-dated debt.
“Pension funds and life insurers, which typically invest in longer-maturity bonds, went on a buying spree because they feared another rate cut by the central bank could bring yields down even further,” Byun Jeong Hye, a credit analyst with Shinhan Investment Corp. said by telephone on July 25 in Seoul. “It’s better to snap up solid credits now, rather than later.”
South Korea’s won strengthened 0.6 percent this month to 1,138.90 against the dollar. The currency fell to a two-week low of 1,153.45 on July 25 after Bank of Korea Governor Kim Choong Soo said the nation may not meet the bank’s growth target.
Korea South-East, the power generating unit of Korea Electric Power Corp. (KEP:US), priced 110 billion won of 10-year securities to yield 3.33 percent, its lowest-ever yield for that maturity, according to data compiled by Bloomberg.
Lotte Shopping Co., South Korea’s largest department store operator, plans to offer 750 billion won of bonds next week, according to preliminary data compiled by Bloomberg. Samsung Techwin Co., a maker of aircrafts and imaging products, is readying a sale of 200 billion of three-year notes that will probably price next week, the data show.
Top Five Underwriter Rankings Year to Date Company Market Share Amount in won Woori Investment & Securities Co. 14.3% 4.79 trillion KB Investment & Securities Co. 13.0% 4.37 trillion Korea Investment & Securities Co. 11.4% 3.85 trillion TongYang Securities Inc. 11.3% 3.79 trillion Shinhan Investment Corp. 7.6% 2.54 trillion
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