Securing Ammunition Before Interest Rates Rise... Rush in Corporate Bond Issuance

This Month's Corporate Bond Demand Forecast
Expected to Reach Up to 6.5 Trillion Won

As Demand Forecast Funds Pour In
Companies Continue to Increase Issuance

[Asia Economy Reporter Minji Lee] More companies are issuing corporate bonds at low interest rates before rates rise to raise funds. From the issuer's perspective, issuing bonds when interest rates are low is more profitable as higher rates increase interest expenses.

According to the financial investment industry on the 6th, the expected corporate bond demand forecast volume this month is estimated to reach up to 6.5 trillion KRW, significantly surpassing the 3.5 trillion KRW level recorded in April last year. The increase in companies issuing corporate bonds has greatly boosted the forecast volume. Earlier this year, the historically abundant liquidity and sustained low interest rate environment led to a boom in the corporate bond issuance market, which had been unstable due to COVID-19 last year. Amid this, as government bond yields recently surged and bond interest rates showed an upward trend, companies have been issuing corporate bonds since the end of last month to secure funds at low interest rates before the rate hike.

Companies expect upward pressure on interest rates to continue through the second half of the year amid economic recovery. After interest rates, which showed high volatility last month, slightly declined this month, companies are rushing to issue corporate bonds to seize the opportunity. In particular, issuance by companies with credit ratings of A or below is increasing. The proportion of A-rated corporate bonds in demand forecasts has remained around 23% since early this year but is expected to expand to the mid-20% range this month. This reflects concerns that if government bond yields continue to rise, the investment attractiveness of A-rated bonds may decline, leading to unstable supply and demand.

Kim Eun-gi, a researcher at Samsung Securities, explained, "Issuance by A-rated and below companies was not significant due to COVID-19, but it is expected to increase substantially this month. Typically, in mid-May, corporate bond demand forecasts are not conducted due to the submission of first-quarter review reports, so more companies are likely to issue corporate bonds before then."

It is also noteworthy that more funds are pouring into corporate bond demand forecasts than the amount sought, continuing a successful streak. For institutions seeking carry (interest income), the interest rate attractiveness of corporate bonds issued by companies is higher than government bond yields. Lee Hwajin, a researcher at Hyundai Motor Securities, said, "Institutions that need to deploy funds will maintain steady carry demand for corporate bonds. Accordingly, the number of companies issuing corporate bonds will increase."

As more funds than expected flow in, companies issuing corporate bonds are continuing to increase issuance amounts. On the 25th of last month, Hyosung Heavy Industries (A0), which conducted a demand forecast, sought 50 billion KRW for 3-year bonds and 20 billion KRW for 5-year bonds but issued 94 billion KRW on the issuance day. On the 29th of last month, SK Energy (AA) issued 3-year, 5-year, 7-year, and 10-year corporate bonds aiming to raise 300 billion KRW, but as competition rates exceeded 4 to 5 times in each segment, the issuance amount was increased to 500 billion KRW. Securities firms also increased issuance limits based on improved credit ratings: Kyobo Securities (AA-) raised its limit from 200 billion KRW to 300 billion KRW, and Yuanta Securities increased from 100 billion KRW to 150 billion KRW.

SK Hynix (AA0), which conducted a 600 billion KRW corporate bond demand forecast yesterday to raise large-scale investment funds, is also expected to increase issuance by attracting 2.7 trillion KRW. It received 780 billion KRW for 3-year bonds with a 200 billion KRW target, 670 billion KRW for 5-year bonds with a 200 billion KRW target, 290 billion KRW for 7-year bonds with an 80 billion KRW target, and 330 billion KRW for 10-year bonds with a 120 billion KRW target.

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