Opening the SPV Lid... 85% of Corporate Bonds Are A-Rated

"Companies Choose Between Corporate Bonds and Low-Interest Loans" Evaluation Also

[Asia Economy reporters Eunbyeol Kim and Sehee Jang] The financial market, which was volatile during the early spread of the novel coronavirus infection (COVID-19), has stabilized, and with the addition of the government's comprehensive measures, it is judged that corporate financial conditions have somewhat eased. Support through the 'Special Purpose Vehicle (SPV) for purchasing low-credit corporate bonds and commercial papers (CP),' established after much controversy, was also less than expected. However, most companies survived the COVID-19 crisis in the first half of this year through loans, and many face loan maturities in the second half, leading to calls for meticulous post-management of support programs. Guiding the funds distributed to companies toward productive uses is also cited as a challenge.

According to data submitted by the Bank of Korea to Rep. Haejin Cho of the United Future Party on the 12th, as of the end of last month, the SPV purchased corporate bonds and CP worth 582 billion KRW from a total of 16 companies. Among the purchased corporate bonds (272 billion KRW), A-rated bonds accounted for about 232 billion KRW, or 85%. These were corporate bonds that the Korea Development Bank had purchased before the SPV's launch and then transferred to the SPV. Apart from this, the SPV purchased BBB-rated corporate bonds worth 40 billion KRW from two companies. The SPV bought a total of 310 billion KRW in CP, about half of which were relatively high-quality A1-rated CP.

There were no speculative-grade bonds among the corporate bonds and CP purchased by the SPV until the end of July. At the time of the SPV's establishment, the Bank of Korea and the Korea Development Bank stated that they could purchase so-called 'fallen angels'?bonds downgraded from investment grade to speculative grade around the COVID-19 crisis. It appears that since the market had already stabilized by the time the SPV was set up, there were no such bonds available for purchase.

Professor Donghyun Ahn of Seoul National University's Department of Economics said, "Since this is an unprecedented policy initiated using the power to issue currency, it seems they started operations by purchasing relatively high-quality corporate bonds," adding, "The SPV literally supports emergency liquidity, and companies likely sold directly in the market what could be absorbed there." Analyst Hwajin Lee of Hyundai Motor Securities said, "The SPV was created to cover blind spots of the bond stabilization fund, which is why it purchased A-rated bonds," and added, "Just having a place that accepts unsold bonds in the issuance market played a role."

However, there remains analysis that the situation is not yet reassuring. A government official explained, "While some interpret this as an improvement in financial conditions, it is also possible that companies chose to raise funds through other means such as loans because the SPV's purchase interest rate conditions were unfavorable." Under the low-interest-rate environment, the government made loans easily accessible, allowing companies to selectively procure funds.

Professor Inho Lee of Seoul National University's Department of Economics evaluated, "(Although less than expected) companies that sold A-rated corporate bonds in the market are somewhat sound companies," adding, "Considering that there were unsold volumes in the market, it can also be seen that corporate financial conditions are still not good."

Meanwhile, the government is focusing on policies that channel the funds distributed to companies into productive investments. A government official said, "We will create conditions and environments for investment through the Korean New Deal," adding, "In addition, we will strive to lead funds to sound areas through revitalizing venture investment and discovering new private investment projects."

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