$500 Million Government-Backed 'Supply Chain Bonds' to Be Issued

Tariff War Sparked by Trump Threatens Global Supply Chain Stability
First Foreign Currency Bond Based on Government Credit Targeted for Second Quarter Issuance
Three Lead Managers Selected, Including JP Morgan
Supporting Supply Chain Loans for Domestic Companies
Full-Scale Overseas IR Efforts for Fundraising

As U.S. President Donald Trump announces tariffs against countries worldwide, raising concerns about disruptions to the global supply chain, the South Korean government is set to issue $500 million (approximately 713 billion KRW) worth of 'supply chain foreign currency bonds' overseas. This marks the first time the government has raised funds abroad under the name of supply chain bonds. It is effectively the first foreign currency bond issued as a government-guaranteed bond based on the government's creditworthiness. In a rapidly changing environment, it is expected to be used as a source of dollar liquidity necessary to stabilize South Korea's supply chain as a supply-demand country and to enhance crisis response capabilities.

According to related ministries on the 25th, the government plans to issue dollar-denominated supply chain fund bonds with maturities of up to 10 years, totaling $500 million. The issuing entity will be the Export-Import Bank of Korea, targeting issuance in the second quarter. The supply chain bonds will be issued to overseas investors in global financial markets including the U.S., Europe, the Middle East, and Asia. To this end, three overseas institutions, including JP Morgan, have been selected as lead underwriters. The funds raised from the bond issuance will be used to support loans related to supply chain projects for domestic companies. Companies aiming to secure government-designated key economic security items such as semiconductor and secondary battery materials and diversify import sources will be eligible for support. A government official stated, "The exact issuance timing is flexible depending on market conditions, but the first issuance is expected by the end of the first half of the year at the latest," adding, "Based on this year's issuance results, we are considering issuing regularly once a year."

The Export-Import Bank of Korea is making every effort to ensure successful issuance by increasing contact with overseas investors. The bank's capital markets team toured London in late November last year to meet with European investors, and held investor relations (IR) sessions for global investors in Hong Kong and Singapore immediately after the emergency decree situation in December. A bank official said, "Despite concerns about external credibility following the emergency decree in December, overseas investors showed strong interest," adding, "Since this is effectively the debut of a government-guaranteed foreign currency bond, overseas institutional investors seemed particularly interested."

The supply chain bonds will be issued as government-guaranteed bonds with principal and interest repayment guaranteed by the Republic of Korea government. Although Hana Bank issued government-guaranteed bonds once during the global financial crisis, that was a special case with a private issuer amid the crisis, so this is regarded as the first attempt at issuing government-guaranteed foreign currency bonds. When issuing won-denominated Foreign Exchange Stabilization Fund bonds (Oepyeongchae) recently, foreign central banks also showed high interest, paving the way for favorable issuance conditions. A financial investment industry official said, "Supply chain fund bonds based on government credit are expected to function similarly to Oepyeongchae as an investment vehicle." South Korea's government credit rating is 'Aa2 (Moody's)', the third highest among ten investment grades.

[Source=AP] AP News

From the government's perspective, issuing supply chain fund bonds will serve as a means to secure dollar liquidity. With the downward pressure on the Korean economy increasing due to the tariff war initiated by Trump and concerns over the slowdown of key export items, there are calls to accelerate support for advanced industries. South Korea's export dependence on China (19.5% as of the end of 2024) is nearing 20%, making it difficult to predict the ripple effects of tariff aftershocks within the intricately intertwined Korea-China industrial structure. Since 2017, as the U.S.-China trade war intensified and the COVID-19 pandemic caused supply chain disruptions originating from China, South Korea has painfully experienced breaks in the global supply chain. A representative from a domestic export company said, "With the inauguration of Trump's second term government accelerating the power struggle between China, which holds supply chain hegemony, and the U.S., which is speeding up efforts to dismantle China's monopoly, the impact on South Korea as a demand country is inevitable," adding, "We expect the funds raised through the bond issuance to act as a catalyst for export companies' supply chain diversification and technology development."

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