With High Interest Rates, Loans and CP... Large Corporations' Corporate Bond Issuance in Second Half Slashed to One-Third

Issued 47.3 Trillion Won Worth Until This Month... 11.6 Trillion Won in Second Half
Interest Burden Increases, Relying on Short-Term Borrowing Like Loans and CP Instead of Corporate Bonds

In the second half of this year, as the high interest rate situation intensified, the volume of corporate bond issuance by companies significantly decreased. As the interest burden on corporate bonds increased, companies avoided issuing corporate bonds and instead shifted to short-term borrowing such as loans or commercial paper (CP, including short-term bonds) with relatively lower interest rates.

According to the investment banking (IB) industry on the 15th, domestic companies issued a total of 47.297 trillion won worth of corporate bonds (excluding bank bonds and credit finance bonds) this year. Of this, corporate bonds issued in the first half amounted to 35.674 trillion won, accounting for more than 75% of the total. Corporate bonds issued in the second half were only 11.623 trillion won, about one-third of the first half.

This is the result of companies drastically reducing corporate bond issuance in the second half. SK Group, which has issued the most corporate bonds domestically for several years, issued 7.914 trillion won worth of corporate bonds in the first half. In contrast, in the second half, it only issued 2.652 trillion won worth. LG Group issued 4.657 trillion won worth of corporate bonds in the first half, but in the second half, it issued only 170 billion won worth, which is just 4% of the first half's volume.

Among large business groups, SK Group was the only one to issue more than 1 trillion won worth of corporate bonds in the second half. Hanwha Group (990 billion won), Lotte Group (885 billion won), POSCO Group (655 billion won), and Shinsegae Group (605 billion won) all issued less than 1 trillion won worth of corporate bonds. LG Group, which was the second largest issuer among large companies in the first half, fell to the 20th position in the second half.

The sharp decline in corporate bond issuance volume is due to companies shifting to short-term financing such as loans or CP instead of bond issuance as interest rates continued to rise in the second half. A bond market official said, "While corporate bond issuance has decreased in the second half, short-term borrowing such as corporate loans or CP, which can lower interest rates in various forms, is increasing."

SK Hynix, which issued 1.39 trillion won worth of corporate bonds in the first half, did not issue any corporate bonds in the second half. Instead, it increased its CP issuance volume (based on outstanding balance) from 400 billion won to about 1.1 trillion won. LG Energy Solution, which issued 1 trillion won worth of corporate bonds in the first half, also did not issue bonds in the second half.

The avoidance of corporate bonds is analyzed to be more severe for companies with lower credit ratings. Due to the US commercial real estate crisis, the Israel-Hamas conflict, concerns over domestic project financing (PF) defaults, and the Daeyu Group bankruptcy incident, the preference for safe assets has intensified, deepening the polarization of the bond market where companies with low credit ratings find it difficult to issue corporate bonds.

An IB industry official said, "Companies with credit ratings of A- or below find it difficult to gather sufficient investment demand in the corporate bond market," adding, "Companies with low credit ratings are securing liquidity by utilizing alternative financing methods such as bank collateral loans, asset securitization, and securitized loans." The official also said, "Most of the major domestic investment institutions have executed most of their planned investments for this year, so there are not many companies planning to issue corporate bonds in December," and predicted, "If bond interest rate volatility subsides and stabilizes, companies are likely to increase corporate bond issuance again."

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