'PF Restructuring and Interest Rate Uncertainty' Cause Sharp Decline in May Corporate Bond Issuance Volume

Monthly issuance expected below 1 trillion, lowest ever
Early proactive fund securing leads to lull
Watchful waiting likely until uncertainty is resolved

The issuance volume of corporate bonds by large conglomerates has sharply declined. Subsidiaries of major companies such as SK, LG, Lotte, and Hanwha have proactively secured liquidity by issuing trillions of won worth of corporate bonds every month this year, but bond issuance has been subdued since the general election. It is interpreted that uncertainties in bond supply and demand (demand and supply) and interest rates due to project financing (PF) restructuring have also influenced companies' 'market watch' behavior.

According to the investment banking (IB) industry on the 17th, corporate bonds issued by general large corporations excluding financial companies in May amounted to only 400 billion won. In the case of public bonds, which undergo a demand forecast (bond bidding) process, only Hotel Lotte (200 billion won), SK Advanced (85 billion won), and SPC Samlip (70 billion won) issued bonds this month. Kolon (21 billion won), Emart24 (11 billion won), and JoongAng Ilbo (5 billion won) issued small amounts of private bonds. Compared to the average monthly issuance of about 7.5 trillion won from January to April, the bond issuance volume in May is less than one-tenth of the usual month.

If the trend continues, it is expected that the issuance volume of corporate bonds in May will have difficulty exceeding 1 trillion won. No companies have announced large-scale public bond issuances in late May. This is the lowest monthly issuance amount this year and the lowest issuance volume in May on record.

The sharp decline in corporate bond issuance volume is because large corporations have secured a certain amount of funds needed in the first half of the year. Companies issued a total of 30.1 trillion won worth of corporate bonds from January to April this year. SK Group issued 5.4 trillion won worth of corporate bonds during the same period while continuing investments in secondary batteries amid sluggish refining, petrochemical, and semiconductor businesses. LG Group also issued bonds worth 3.7 trillion won while continuing investments in secondary batteries amid deteriorating cash flow in the petrochemical business.

Lotte Group (3.3 trillion won) and Hanwha Group (1.5 trillion won) also issued bonds worth trillions of won this year to repay maturing borrowings and raise investment funds. An IB industry official said, "Companies proactively increased bond issuance after the general election in preparation for uncertainties in the bond market and PF market," adding, "Since they have secured sufficient funds for refinancing borrowings and investments, corporate bond issuance has been subdued after the general election."

Uncertainty in the bond market due to the full-scale PF restructuring is also cited as a reason why companies are watching their funding. Recently, banks have been issuing bank bonds worth trillions of won weekly to secure liquidity, and non-bank financial companies (card companies, capital companies) are increasing fundraising to secure provisions for non-performing loans (NPL), raising concerns about worsening supply and demand in the bond market.

A bond market insider said, "Since the financial authorities announced PF restructuring measures, the corporate bond yield spread (difference from government bond yields), which had been stabilizing downward, is showing signs of rising again," adding, "As the possibility of interest rate cuts in major countries such as the U.S. weakens, uncertainty about the direction of interest rates is increasing, and the subdued atmosphere in the corporate bond issuance market is expected to continue for some time."

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