33 Trillion Won in Corporate Bonds Maturing This Year... Prolonged Crisis Could Trigger Widespread Funding Shortages Among Companies

Unsubscribed Corporate Bonds Increase and Stock Prices Plunge, Freezing IPOs
KOSDAQ Companies Face Challenges Issuing Convertible Bonds and Warrants Bonds

[Asia Economy Reporters Jeongsoo Lim, Minji Lee] As the volatility in the financial markets increases due to the novel coronavirus disease (COVID-19) crisis, unusual signs have begun to appear in corporate financing channels. Several cases of corporate bond undersubscription have occurred, and the initial public offering (IPO) market has frozen due to a sharp drop in stock prices. There are concerns that if the COVID-19 crisis prolongs, a surge of companies may face financial difficulties.

According to the financial investment industry on the 18th, corporate bonds (both public and private) maturing within this year after April amount to 33 trillion won. Among these, refinancing demand is expected to exceed 20 trillion won. An investment banking (IB) industry official said, "More than half of companies reissue maturing bonds every year," adding, "Considering new funding needs as well, there will be a demand for bond issuance of at least 60 trillion won."

However, as the corporate bond market sentiment begins to cool, securing investment demand is expected to be challenging. In particular, the bond spreads of BBB-rated companies with lower credit ratings have surged sharply, leading to undersubscription in corporate bond demand forecasts. If the COVID-19 crisis prolongs, it may become difficult for companies rated BBB and even those rated A- to secure funds through corporate bond issuance.

Korean Air, which has entered emergency management due to the COVID-19 crisis and holds a BBB+ credit rating, faces corporate bond maturities of 240 billion won in April, 185 billion won in August, and 75 billion won in November. Although some refinancing funds have been prepared, concerns are rising that securing funds will not be easy as market conditions worsen amid the possibility of a credit rating downgrade.

Doosan Group affiliates Doosan (BBB+), Doosan Heavy Industries & Construction (BBB), and Doosan Infracore (BBB) must respond to bond maturities of 50 billion won, 60 billion won, and 87 billion won respectively from May to September. Hyundai Rotem (BBB+), affiliated with Hyundai Motor Group, faces a public bond maturity of 110 billion won in June. Companies with BBB+ credit ratings such as AJ Networks, Daesung Industrial Gases, Polaris Shipping, Handok, and Hansol Technics also have corporate bond maturities coming up one after another starting in April.

Experts believe that if the COVID-19 crisis prolongs, these companies will find it difficult to refinance corporate bonds. A representative from Mirae Asset Daewoo’s Debt Capital Markets (DCM) said, "It is difficult to definitively say that the corporate bond issuance market is frozen under the current circumstances, but it is true that investment institutions are not actively participating due to market volatility," adding, "If the COVID-19 crisis spreads more than expected, the issuance market will shrink significantly."

The IPO market is also cold due to the sharp drop in stock prices. Companies undergoing public offering procedures for listing are facing difficulties in obtaining fair prices. As a result, LS EV Korea, Metanet Mplatform, and Sencore Tech, which were pursuing listings on KOSDAQ, have withdrawn their listing plans. An IB industry official said, "As the domestic stock market plunges, the public offering market sentiment is also showing signs of stagnation."

Issuance of convertible bonds (CB) and bonds with warrants (BW) by KOSDAQ companies is also expected to be difficult. After the Lime scandal caused a sharp decline in mezzanine investment demand, the COVID-19 crisis has made the situation worse. Taehoon Lee, a researcher at Ebest Investment & Securities, predicted, "For KOSDAQ companies, the exercise of early redemption rights (put options) is approaching, and companies with weak financial structures will find it difficult to endure."

Kim Pilsoo, a research fellow at the Capital Market Institute, expressed concern, saying, "Mezzanine bonds must be redeemed if they cannot be converted into stocks, but due to the sharp drop in KOSDAQ market stock prices, stock conversion is unlikely to proceed properly," adding, "Especially KOSDAQ companies have low credit ratings, which could cause significant problems in their funding situations."

This content was produced with the assistance of AI translation services.