As Market Interest Rates Fall... Large Corporations Issue Corporate Bonds One After Another

Interest Rate Downward Stabilization... Issuance Expected Up to 1 Trillion Won
Intended to Lower Interest Costs Amid Monetary Policy Uncertainty

Hanwha Aerospace 400 Billion Won Bid Attracts 1.4 Trillion Won... Institutional Investors' Waiting Funds Also Ample

Leading domestic conglomerates have begun issuing corporate bonds one after another since the beginning of the year. Amid uncertainty about the direction of interest rates, market interest rates have stabilized at their lowest levels in the past year, prompting more companies to raise funds at slightly lower rates. With major bond buyers such as pension funds gearing up for large-scale investments early in the year, institutional funds are expected to flood into the corporate bond market.

According to the investment banking (IB) industry on the 3rd, large corporations such as LG Uplus (credit rating AA), Lotte Shopping (AA-), Hotel Lotte (AA-), Hanwha (A+), Hanwha Aerospace (AA-), Hanwha Solutions (AA-), and Hyundai Oilbank (AA-) plan to issue large-scale corporate bonds. These companies have selected Mirae Asset Securities, KB Securities, NH Investment & Securities, Korea Investment & Securities, and Shinhan Investment Corp. as lead managers at the end of last year and have been preparing for bond issuance.

Since securities registration statements have not yet been submitted, the exact issuance size for each company is not confirmed. Although there are rumors that some companies may issue bonds up to 1 trillion KRW, most are expected to issue bonds worth several hundred billion KRW. Previously, Hanwha Aerospace (AA-), Mirae Asset Global Investments (AA), and KCC (AA-) disclosed in their securities registration statements that they would issue bonds worth up to 400 billion KRW, 150 billion KRW, and 580 billion KRW, respectively.

SK Group and LG Group affiliates, which have issued the most corporate bonds domestically, are also poised to enter the bond issuance market one after another. SK Group issued 10.85 trillion KRW in corporate bonds last year due to SK Hynix's large-scale deficit and investments in the secondary battery sector. LG Group issued 4.83 trillion KRW in bonds centered on LG Energy Solution, LG Uplus, and LG Electronics. Lotte Group follows with 4.34 trillion KRW.

The surge in large corporate bond issuance from the beginning of the year is closely related to the recent downward stabilization of market interest rates. The yield on AA-rated 3-year maturity corporate bonds peaked at 4.864% in late October last year and has steadily declined, reaching a low of 3.823% at the end of last year. Although interest rates have slightly risen since the new year, they are still moving at the lowest levels in the past year. Considering the sharply increased interest expenses last year, now is considered an opportune time to issue corporate bonds.

The increase in investment standby funds from major investors such as pension funds, mutual aid associations, insurance companies, and asset management firms, who are the main demanders of corporate bonds, has also influenced large corporations' bond issuance. Large investment institutions establish plans for their investment portfolios for the coming year at the end of the year and execute more than half of their new funds within the first half. It is no exaggeration to say that about half of corporate bond investments occur early in the year and within the first quarter.

An IB industry official explained, "For SK Group, which issues around 10 trillion KRW in corporate bonds annually, lowering bond interest rates by 1% can reduce annual interest expenses by 100 billion KRW," adding, "Given the difficulty in predicting future interest rate trends, the current interest rate level is quite attractive for bond issuance." The official also predicted, "Once corporate bond demand forecasts begin, institutional standby funds will flood into corporate bonds, potentially pushing interest rates down further."

In fact, Hanwha Aerospace, which conducted a corporate bond demand forecast the day before, attracted institutional funds of 1.42 trillion KRW for a 400 billion KRW bond issuance. The funds seeking to purchase bonds exceeded three times the issuance amount. Thanks to the overwhelming investment demand, Hanwha Aerospace succeeded in lowering the bond issuance interest rate below the private bond rating agency's benchmark rate (minpyeong rate).

However, with Taeyoung Construction's workout application and project financing (PF) defaults negatively impacting the bond market, it is expected that companies with lower credit ratings will find it difficult to issue bonds. A bond market insider said, "The Taeyoung Construction issue will not have a significant adverse effect on the entire bond market," but added, "Polarization in the bond market by industry and credit rating is likely to intensify."

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