1Q ELS Issuance Amount Halved... Capital Outflow Intensifies

Q1 ELS Issuance Amount 4.0539 Trillion KRW
46.31% Decrease from Previous Quarter
Index-Type Issuance Share Declines and Maturity Redemptions Surge Due to Hong Kong H Index Loss Impact

The issuance amount of equity-linked securities (ELS) in the first quarter of this year has been halved compared to the previous quarter. It appears that the ELS new issuance market is shrinking due to losses related to the Hong Kong H Index (Hang Seng China Enterprises Index·HSCEI). Additionally, as maturity redemptions increase sharply, opinions suggest that capital outflows from the ELS market are becoming more pronounced.

According to the Securities Information Portal (SaeBro) of the Korea Securities Depository on the 5th, the issuance amount of ELS in the first quarter of this year recorded 4.0539 trillion won, a 46.31% decrease compared to 7.5512 trillion won in the fourth quarter of last year. The scale of ELS issuance is continuously declining. The issuance amount of ELS, which reached 2.9204 trillion won in October last year, fell below the 2 trillion won mark to 1.8553 trillion won in December last year, and further decreased to 1.0221 trillion won in February this year. Last month, it slightly increased to 1.2378 trillion won.

The proportion of index-linked ELS issuance is decreasing due to losses related to the Hong Kong H Index. The issuance ratio of index-linked ELS in the first quarter was 80.5%, down about 9 percentage points from 89.5% in the fourth quarter of last year. Jeong In-ji, a researcher at Yuanta Securities, said, "This is significantly lower than the one-year average of 87.5%," adding, "This appears to be a phenomenon caused by sluggish sales of public offering ELS due to maturity losses related to the Hong Kong H Index." The decrease in the issuance ratio of index-linked ELS led to an increase in the issuance ratio of equity-linked and mixed-type ELS. The issuance ratio of equity-linked and mixed-type ELS in the first quarter was 19.5%, about 9 percentage points higher than 10.4% in the fourth quarter of last year.

Since December last year, the issuance of ELS related to the Hong Kong H Index has been decreasing, and the decline has accelerated this year. The issuance amount of ELS related to the Hong Kong H Index was 264.5 billion won in December last year, but it averaged only 36.4 billion won per month in the first quarter of this year.

The impact of ELS related to the Hong Kong H Index is increasing maturity redemptions. Monthly redemption amounts have been steadily rising since November last year. The average monthly redemption amount increased from 3.4 trillion won in the fourth quarter of last year to 4.04 trillion won in the first quarter of this year. Researcher Jeong said, "The increase in redemption amounts in the first quarter of this year is the result of a surge in maturity redemptions and is not qualitatively favorable."

The maturity redemption amounts were 973.6 billion won in January, 1.7 trillion won in February, and 1.8 trillion won in March. Most of these were maturity redemptions of ELS related to the Hong Kong H Index. Due to the surge in maturity redemptions, the early redemption ratio in the first quarter was about 60%, down 37 percentage points from the fourth quarter of last year.

Since May last year, monthly ELS redemption amounts have exceeded issuance amounts, and with the increase in maturity redemptions, large-scale capital outflows from the ELS market are becoming a reality. Researcher Jeong explained, "The redemption issuance amounts in February and March this year were 2.98 trillion won and 3.38 trillion won, respectively," adding, "With the surge in maturity redemptions, the redemption amounts have increased sharply, making large-scale capital outflows a reality."

ELS related to the Hong Kong H Index, which mature in the first half of the year, amount to about 10 trillion won in issuance value, with the largest maturity amount scheduled for this month. Maturities of 917.2 billion won in January, 1.6586 trillion won in February, and 1.817 trillion won in March have occurred, and 2.5552 trillion won in maturities are scheduled for this month. Researcher Jeong said, "The large-scale maturity loss redemptions of ELS related to the Hong Kong H Index, which were anticipated, materialized in the first quarter, and April is the month with the greatest damage in terms of amount," adding, "There are many days with large maturity redemption amounts in the first half of April, and daily redemption amounts are expected to decrease toward the latter half. Subsequently, in May and June, the amounts are expected to decrease to around 1.5 trillion won."

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