Corporate Bonds Maturing in April Up 10.8% YoY...Concerns Over Increased Corporate Financing Pressure

[Asia Economy Reporter Oh Ju-yeon] As investment sentiment has weakened due to the novel coronavirus infection (COVID-19), the corporate bond market has also frozen, and the volume of corporate bonds maturing next month is the largest among all April volumes on record, raising concerns about increased funding burdens for companies.

According to the Korea Financial Investment Association on the 22nd, the volume of domestic corporate bonds maturing from January to December this year is 50.8727 trillion won. Among these, the volume of corporate bonds maturing in April alone is 6.5495 trillion won. This is 637.3 billion won (10.8%) more than the 5.9122 trillion won in the same month last year and is the largest April maturity volume since the association began compiling statistics in 1991.

Looking at companies with non-investment grade corporate bonds rated A or below maturing in April, Korean Air with a BBB+ rating has corporate bonds worth 240 billion won maturing in April. Hite Jinro (A, 143 billion won), Poongsan (A, 100 billion won), HSD Engine (BBB-, 80 billion won), and SK Construction (A-, 56 billion won) also have bonds maturing next month.

In recent years, as the volume of corporate bonds issued by companies has increased, the volume of maturities has also risen.

According to the Financial Supervisory Service, the annual volume of corporate bonds issued through public offerings increased from 109.8579 trillion won in 2016 to 144.0238 trillion won in 2017, 160.9183 trillion won in 2018, and 170.1827 trillion won in 2019. Under a low interest rate environment, companies raised funds at low rates, increasing corporate bond issuance. Additionally, investors seeking higher returns favored corporate bonds due to their higher yields compared to government bonds.

However, recently, the corporate bond market has rapidly deteriorated due to COVID-19, leading to a contraction in demand for corporate bonds and signaling a red light for domestic companies’ funding. This is confirmed by the daily widening of credit spreads, which indicate corporate credit risk. On the 20th, the credit spread between the 3-year AA- rated unsecured corporate bond yield and the 3-year government bond yield was 83.8 basis points, the highest in over eight years since February 6, 2012 (85.0 basis points).

The widening credit spread is interpreted as meaning that although corporate bonds offer higher yields than government bonds, they are relatively riskier and are being shunned in the market.

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