Corporate Bond Demand Forecast Volume of 770 Billion KRW Over Two Days... Will the ChaAn Fund Effect Be Seen?

Demand Forecasting by 5 Companies Including Hotel Shilla and Orion on 16-17
Concerns Persist Over Unsubscribed Corporate Bonds Due to Hanwha Solutions' Chan Fund Withdrawal

[Asia Economy Reporter Minji Lee] Amid growing instability in the financial market due to the shock of the novel coronavirus infection (COVID-19), major companies plan to conduct demand forecasts worth around 700 billion KRW over two days on the 16th and 17th. The market is increasingly focused on whether liquidity supply to the bond market can be facilitated through the operation of the Bond Market Stabilization Fund (Cha-an Fund).

▲View of the Yeouido financial district in Seoul

According to the financial investment industry on the 15th, demand forecasts are scheduled for Hotel Shilla and Orion on the 16th, and SK Energy, GS, and Poongsan on the 17th. The total amount these companies plan to raise is 770 billion KRW.

Considering that demand forecasts were conducted for 740 billion KRW on the 13th and 14th, the total amount to be raised during this week reaches 1.51 trillion KRW.

By company, SK Energy plans to raise the largest amount at 300 billion KRW. SK Energy intends to issue 3-year corporate bonds worth 200 billion KRW, 5-year bonds worth 40 billion KRW, and 10-year bonds worth 60 billion KRW.

GS will issue 3-year bonds worth 200 billion KRW, Hotel Shilla plans to issue a total of 150 billion KRW including 110 billion KRW in 3-year bonds. Orion will raise 70 billion KRW in 3-year bonds, and Poongsan will raise 50 billion KRW in 3-year bonds.

Due to the impact of COVID-19, the amount raised through corporate bonds last month was 2.092 trillion KRW, significantly lower than the same period last year (6.892 trillion KRW), but the number of companies issuing corporate bonds has been increasing since April.

Starting with Lotte Food on the 6th, companies such as Lotte Chilsung Beverage, Kia Motors, Hanwha Solutions, and Hyundai Autron consecutively conducted demand forecasts on the 13th and 14th.

The market expects that since there is concern over corporate liquidity tightening due to undersubscription in demand forecasts, the Cha-an Fund will participate in demand forecasts to provide relief.

The Cha-an Fund has already placed purchase orders in demand forecasts for Lotte Food, Lotte Chilsung Beverage, and Kia Motors, and all these companies succeeded in their demand forecasts.

The credit ratings of companies participating in this demand forecast are SK Energy 'AA+', GS, Orion, and Hotel Shilla 'AA', and Poongsan 'A'. Except for Poongsan, all meet the Cha-an Fund’s purchase conditions of 'credit rating AA- or higher, bonds with maturities of 3 years or less.'

However, despite the operation of the Cha-an Fund, Hanwha Solutions, which conducted a demand forecast on the 14th, recorded an undersubscription, so concerns about unsold bonds are expected to persist.

Previously, although Hanwha Solutions was included as a purchase target with a credit rating of 'AA', it was reported that major institutional investors, including the Cha-an Fund, did not participate in the demand forecast. This was due to growing concerns over a credit rating downgrade caused by worsening earnings, resulting in valid purchase orders of only 60 billion KRW against a planned 210 billion KRW issuance.

Meanwhile, the interest rate on 3-year unsecured corporate bonds with an 'AA-' rating stood at 2.126% per annum as of the 14th of this month, marking the highest level since May last year. The spread with 3-year government bonds was 113 basis points (1bp = 0.01 percentage points), the largest since March 4, 2010 (113bp).

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