“Tae-young's Bond Market Did Not Experience Instability”... Large Funds Poured into KCC and Others

Over 1 Trillion Won Poured into Corporate Bond Issuance
Strong Demand for High-Grade Bonds Amid Expectations of Interest Rate Decline

Despite the Taeyoung Construction incident, the high-credit-quality corporate bond market remained robust. At the beginning of the year, more than 1 trillion won in large-scale lump-sum funds poured into corporate bond issuances by KCC, LG Uplus, and Hanwha Aerospace. This is interpreted as increased demand for investment in high-quality bonds amid growing expectations that interest rates will stabilize at a lower level in the long term.

Taeyoung Construction, which applied for a workout due to liquidity issues in real estate project financing (PF), has completed a creditors' briefing session. On the 4th, the traffic light in front of Taeyoung Construction's headquarters in Yeouido, Seoul, turned red. Yoon Se-young, the founding chairman of Taeyoung Group, acknowledged management's mistakes during the briefing and requested consent for the workout, but the main creditor bank, the Korea Development Bank, asked for an additional self-rescue plan. Photo by Kang Jin-hyung aymsdream@

According to the investment banking (IB) industry on the 9th, KCC (credit rating AA-), the holding company of the KCC Group, received a total of 1.305 trillion won in investment orders during the corporate bond demand forecast held the previous day. For the 2-year maturity bonds worth 50 billion won, 230 billion won in demand was received; for the 3-year maturity bonds, 975 billion won; and for the 5-year maturity bonds worth 50 billion won, 100 billion won in investment demand was placed. Considering that the demand forecast was for issuing 300 billion won worth of corporate bonds, orders exceeding four times the target amount were gathered.

Before the demand forecast, KCC proposed desired interest rates by adding -30 to +30 basis points (1bp = 0.01 percentage points) to the individual market average rates (corporate bond rates evaluated by private bond rating agencies). The 2-year maturity bonds were fully subscribed at -1bp, the 3-year bonds at +2bp, and the 5-year bonds at +29bp. It is reported that KCC decided, in consultation with underwriters, to increase the corporate bond issuance amount up to 580 billion won, about twice the originally planned issuance amount.

KCC plans to use the funds raised from the corporate bond issuance to repay maturing commercial papers (CP). By issuing corporate bonds with maturities around three years to repay short-term borrowings like CPs with maturities under one year, the company can improve the maturity structure of its borrowings. Within the corporate bond issuance limit, there will be no concerns about repayment of borrowings for 2 to 5 years.

An IB industry official explained, "KCC's borrowings ballooned to about 5 trillion won after acquiring the global silicone manufacturer Momentive," adding, "Despite some instability factors such as having KCC Construction as a subsidiary and a high proportion of building materials business, institutional investors' funds poured in."

Large-scale institutional funds also poured into LG Uplus (AA) and Hanwha Aerospace (AA-), which previously conducted corporate bond demand forecasts. LG Uplus gathered 1.75 trillion won in investment demand for a 250 billion won corporate bond issuance. Hanwha Aerospace received 'buy' orders totaling 1.42 trillion won for a 200 billion won corporate bond issuance. Both companies saw demand exceeding seven times their planned bond issuance amounts. Both companies increased their corporate bond issuance reflecting the demand.

In particular, Hanwha Aerospace has been under increasing financial burden due to investing 1.9689 trillion won to support the acquisition of Hanwha Ocean and investing in new businesses such as energy storage systems, satellite communications, and air mobility. As of the end of September last year, borrowings had increased to 4.5 trillion won, and the maturity of borrowings was continuously pending. However, cash flow improved due to performance improvements in the defense industry business, maintaining stable creditworthiness. This large-scale corporate bond issuance will further reduce borrowing burdens.

The concentration of funds into high-quality corporate bonds is expected to continue for some time. An executive in charge of the bond issuance market at a securities firm said, "With expectations that major central banks will not raise interest rates further, market interest rates are trending downward and stabilizing," adding, "Despite concerns about construction project financing (PF), demand for high-quality bonds is increasing amid growing expectations of further interest rate declines." The official predicted, "The popularity of high-quality corporate bonds will not diminish for the time being," but also noted, "However, due to the PF incident, it will be difficult for non-investment grade companies rated A or below and construction companies to secure liquidity for the time being."

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