SYDNEY: South Korean companies have issued a record volume of dollar bonds so far this year, as they lock in funding to pay for overseas expansion plans and investors search for an alternative given the dearth of Chinese bond issuance.
More than US$15bil worth of bonds have been issued since Jan 1, according to LSEG data, a 30% increase on the same time last year.
January in South Korea is typically a traditionally busy month for bonds, according to bankers, but the rush of deals has surpassed expectations as companies take advantage of a current positive sentiment among investors towards South Korea.
Expectations of higher interest rates prompted some South Korean corporates to shelve deals in 2023 but upcoming funding needs have prompted the transactions to be revived this year, bankers said.
China’s offshore bond deals have fallen sharply as its real estate sector, a key issuer of dollar bonds, remains in crisis and the nation’s economy still recovers from the pandemic.
“South Korea is a very well-liked credit across different cycles. The country is AA rated, its issuers are either AA, A or BBB category,” Daniel Kim, HSBC’s co-head of debt capital markets for Asia-Pacific, said.
“In the current environment, where there is a lot of uncertainty and macro noise, South Korea is seen as a safe haven for a lot of investors to put their money into.”
SK Hynix, the world’s second largest memory chip maker was one of the biggest South Korean companies to tap markets this year as it raised US$1.5bil in a two-tranche deal last month that received orders worth US$6.5bil.
South Korean deals accounted for 44% of dollar bonds issued across the Asian region, not including Japan and Australia, where the value of transactions is down 10% year to date, according to the LSEG data.
“I think the pace can be maintained,” said Rishi Jalan, Citi’s head of Asia Debt Syndicate, referring to the record start to 2024.
“Our overall volume expectations are similar to 2023 for this year, so around US$30bil to US$40bil. We’re not expecting to see any material decline.”
The expansion of South Korea’s battery makers into markets like the United States is expected to require those companies to continue to need to tap funding markets for the rest of the year. — Reuters
