April Corporate Bond Issuance Hits Record High... Strong Demand from Issuers Rated A and Below

Net Issuance Exceeds 7.2 Trillion Won
Net Issuance Larger Than Pre-COVID-19 Levels

[Asia Economy Reporter Minji Lee] As more companies issue corporate bonds at low interest rates before rates rise, the demand forecast volume for corporate bonds in April reached a record high. With concerns about credit rating downgrades for companies rated A and below, which had experienced prolonged weak investment sentiment since COVID-19, easing, a stable issuance trend is expected to continue.

According to the Korea Financial Investment Association on the 30th, the net issuance volume of corporate bonds this month was 7.2087 trillion KRW, with issuance amount at 15.7445 trillion KRW and redemption amount at 8.5358 trillion KRW. The issuance amount significantly exceeded the level of 12 trillion KRW in February this year, when issuance volume was concentrated at the beginning of the year. Compared to April last year, when issuance volume sharply declined due to COVID-19 and net issuance (747.2 billion KRW) shrank considerably, it increased by 864%. The net issuance scale was also larger than in April 2019 (3.5493 trillion KRW), 2018 (2.7511 trillion KRW), and 2017 (3.0179 trillion KRW), before the COVID-19 outbreak.

Typically, April sees an increase in issuance volume as it reflects the reduced issuance in March due to the submission of audit reports. Consequently, redemption volume also increases. Despite this, the unusually large net issuance this month is attributed to companies rushing to issue corporate bonds before interest rates rise. Last month, as the U.S. 10-year Treasury yield surged sharply, pressure for rate hikes rapidly increased, leading more companies to secure funds at low interest rates before rates climb further. From the issuer's perspective, higher rates mean increased interest expense burden.

As institutional investors sought to secure interest income proportional to the increased issuance volume, demand forecasts also proceeded smoothly. The demand forecast oversubscription rate this month was around 200%, which did not reach the 500-600% oversubscription rate seen at the beginning of the year, but the market absorbed most of the volume, continuing the trend of increased issuance.

The ESG bond issuance boom among large corporations also continued. Hanwha Co., Ltd. (A+ rating), which conducted a demand forecast the previous day, is expected to increase issuance after receiving orders totaling 900 billion KRW for its first-ever 100 billion KRW ESG bond issuance. On the 27th, LG Electronics (AA rating) also attracted 780 billion KRW in funds for a 130 billion KRW ESG bond issuance and 500 billion KRW for a 170 billion KRW general corporate bond issuance, planning to increase issuance up to 600 billion KRW, exceeding the original 300 billion KRW target.

In particular, companies in economically sensitive sectors such as retail and airlines, which experienced significant investment sentiment contraction due to the COVID-19 spread, as well as companies rated A and below, also drew positive responses in the market. Youngjoo Heo, a researcher at Korea Investment & Securities, explained, "Offline retail and food and beverage sectors performed well due to expectations of earnings recovery and COVID-19-related special demand," adding, "Investment sentiment in the issuance market remains firm, and demand forecasts for issuers rated A and below were all successful."

As credit rating agencies have begun their regular evaluations of corporate bonds based on last year's financial results, it appears that the feared downgrades for companies rated A and below, which were the biggest concern in the market after the COVID-19 crisis last year, will not materialize. This is because sectors such as construction and securities, mainly rated A, are showing faster earnings improvement and positive rating outlooks. Eun-ki Kim, a researcher at Samsung Securities, explained, "Since the beginning of this month, the overall direction of credit rating and outlook changes has been positive, so concerns about credit rating evaluations this year are expected to ease significantly."

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