US Interest Rate Hikes Block Corporate 'Money Flow'... Surge in Short-Term Fundraising

[Asia Economy Reporter Ji Yeon-jin] Following the Federal Reserve's interest rate hike last month, investment sentiment sharply contracted, leading companies to increase short-term financing with high financial costs.

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According to the corporate direct financing performance announced by the Financial Supervisory Service on the 26th, domestic companies issued stocks worth 960.5 billion KRW (12 cases) in March, down 454.2 billion KRW (32.1%) from the previous month (1.4147 trillion KRW, 14 cases).

Among these, initial public offerings (IPOs) amounted to 98 billion KRW (7 cases), all of which were public offerings for small and medium-sized enterprises listing on the KOSDAQ. The issuance amount decreased by 134.8 billion KRW (57.9%) compared to the previous month. Rights offerings were 5 cases totaling 862.5 billion KRW; although the number of issuances increased by 3 cases compared to the previous month, the issuance amount decreased by 27% (319.3 billion KRW).

The scale of corporate bond issuance in March was 12.9001 trillion KRW, down 8.5% (1.1933 trillion KRW) from the previous month. General corporate bonds amounted to 1.837 trillion KRW, a 65.8% decrease from the previous month (5.375 trillion KRW). This decline is attributed to the sharp rise in issuance interest rates following the US base rate hike, leading to a reduction in issuance volume, especially in general corporate bonds.

General corporate bonds were mainly issued as medium- to long-term bonds, with a decrease in refinancing funds and an increase in operating and facility funds in March. As AA-rated bond issuance declined, the proportion of non-investment grade bonds in March was 60.7%, surpassing the investment-grade bonds at 39.3%.

Financial bond issuance increased by 13.2% from the previous month to 9.3497 trillion KRW (206 cases). Asset-backed securities (ABS) issuance rose by 270.9% to 1.7134 trillion KRW (68 cases). This was influenced by the Korea Credit Guarantee Fund issuing 825.4 billion KRW worth of primary collateralized bond obligations (P-CBO) last month to facilitate smooth financing for companies affected by COVID-19. With the decrease in general corporate bond issuance, net repayments occurred, with net repayments amounting to 1.687 trillion KRW as of the end of March.

On the other hand, commercial paper (CP) and short-term bond issuance last month totaled 149.5194 trillion KRW, up 20% (24.955 trillion KRW) from the previous month. CP issuance was 31.3121 trillion KRW, and short-term bond issuance was 118.2073 trillion KRW, increasing by 7.9% and 23.7%, respectively.

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