Record High Korean Foreign Currency Bond Issuance 'Changed Global Status'... Continued Positive Trend This Year

[Asia Economy Reporter Lee Seon-ae] The issuance volume of Korean Paper (KP), Korean foreign currency bonds, reached an all-time high in 2021, and it is expected to maintain a high level this year as well. As investors widely recognize the very solid fundamentals of the Korean economy, 'Korean Paper' is receiving favorable treatment in the global market.

According to the International Financial Center, Bloomberg, NH Investment & Securities, and others on the 6th, the KP issuance volume in 2021 was $34.4 billion, surpassing the $25.6 billion in 2020 and setting a record high. Although there were many preemptive issuances to lower issuance rates ahead of the US interest rate hikes, strong global and domestic investor demand for KP is also interpreted as a factor expanding issuance volume.

Major KP issuers last year included the Export-Import Bank of Korea with $10.9 billion, Hyundai Capital America with $9.4 billion, Korea Development Bank with $700 million, Kookmin Bank with $2.9 billion, SK Hynix with $2.5 billion, Korea Housing Finance Corporation with $1.8 billion, Industrial Bank of Korea with $1.4 billion, and Foreign Exchange Stabilization Bonds with $1.3 billion.

This year, KP issuance volume is also expected to remain high. NH Investment & Securities analyzed, "The increase in maturities in 2022 along with the expanded issuance rate merits of KP compared to domestic corporate bonds will drive the increase in KP issuance volume." In the fourth quarter of 2021, domestic corporate bonds showed a sharp weakness, causing the average domestic corporate bond yield to exceed the won-converted KP yield, making KP issuance more advantageous from an interest rate perspective. The estimated KP maturity amount this year is $20.2 billion, an increase of $3.1 billion compared to 2021.

First, Hanwha Life Insurance plans to issue ESG subordinated bonds worth between $750 million and $1 billion this year. Korea National Oil Corporation, Kia, and the Export-Import Bank of Korea are also expected to issue KP. The Export-Import Bank plans to issue public bonds with three maturities of 3, 5, and 10 years in the global market and will begin demand forecasting starting with the Asian market. The issuance scale and interest rates will be finalized soon. Major domestic and international financial institutions such as JP Morgan, Citigroup, BNP Paribas, HSBC, and KB Securities have been selected as underwriters. The Export-Import Bank’s credit rating is 'AA (stable)' by Standard & Poor’s (S&P), the same as the Korean government.

The elevated global status of KP is also a driving force behind this year’s growth. Although classified as emerging market bonds in overseas institutional portfolios, KP is recognized as the most stable bond among emerging market bonds, making it highly popular.

Accordingly, the securities industry is also becoming more active. While the securities industry has been cautious in the won-denominated bond market, it is showing signs of expanding business in consideration of the growth of the KP market.

Samsung Securities plans to expand KP-related business at the company-wide level this year and shows a strong will to actively increase issuance performance. Samsung Securities occasionally appeared as a KP issuance underwriter along with Mirae Asset Securities in the 2010s. It was listed as an underwriter when Samsung Electronics’ US subsidiary issued $1 billion in bonds in 2012. However, since 2017, as the won-denominated bond market has become more active, Samsung Securities has shown a passive stance toward KP issuance underwriting.

KB Securities, Mirae Asset Securities, NH Investment & Securities, and Korea Investment & Securities plan to focus on KP issuance performance this year.

Hanwha Investment & Securities is unusually knocking on the door of KP as a small to mid-sized securities firm. Since KP requires global networks and syndicate capabilities, the market has been formed mainly by foreign or large securities firms with experience in these areas. Although domestic securities firms are expanding their presence, it is still mainly centered on large firms. Hanwha Investment & Securities has experience as a co-manager in the global bond deal issued by the Export-Import Bank in January 2017.

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