Corporate Fundraising 'Sharp Chill'..Significant Drop in Corporate Bond Demand Forecasts

by Hwang Junho

Published 18 Apr.2022 15:00(KST)

Corporate Fundraising 'Sharp Chill'..Significant Drop in Corporate Bond Demand Forecasts

[Asia Economy Reporter Junho Hwang] A cold wind has swept through the corporate bond market in the first quarter of this year.

According to the "2022 1st Quarter Public Corporate Bond Demand Forecast Status" announced by the Korea Financial Investment Association on the 18th, a total of 12.3 trillion KRW (145 cases) worth of public unsecured corporate bonds were subject to demand forecasts in the first quarter of this year. This is a decrease of 800 billion KRW (6%) compared to the same period last year. The competition rate among institutional investors also dropped by about 300 percentage points to 225% (27.7 trillion KRW participation) compared to the same period last year.

The association analyzed that institutional investors' sentiment was weakened in the first quarter of this year. This is a stark contrast to the previous year when issuers actively raised funds regardless of credit ratings. It is attributed to the accelerated pace of domestic and international interest rate hikes and monetary tightening due to inflation concerns, combined with increased market uncertainty such as the Ukraine crisis, which led to weakened investment sentiment among institutional investors and a reduction in issuance volume.

High-grade bonds rated AA or above showed a solid level with 21.9 trillion KRW (246%) participation against an expected 8.9 trillion KRW. However, A-rated bonds saw only about 4.7 trillion KRW (170%) participation against an expected 2.8 trillion KRW. BBB-rated bonds recorded a slightly exceeded demand level with 1.1 trillion KRW (174%) participation against an expected 700 billion KRW.

By industry sector, asset management companies accounted for 38% of the total participation volume in demand forecasts. They were followed by securities firms at 31%, pension funds and others at 11%, and insurance companies at 11%. In the case of A-rated bonds, asset management companies (39%) and securities firms (38%) participated more actively in demand forecasts compared to other sectors (pension funds, banks, insurance, etc.). For BBB-grade bonds, securities firms accounted for more than 68% (800 billion KRW) of the total participation amount (1.1 trillion KRW), with the retail division of securities firms acting as the main demand source for non-investment grade bonds. After conducting demand forecasts, looking at the allocation volume by each sector, asset management companies were allocated 34% of the total volume, and securities firms received 31%.