Coronavirus fears in the financial market are quashing bond investors’ appetite for investment-grade bonds issued by South Korean companies, dragging on their plans to raise capital.
From Friday to Wednesday, all corporate bonds of three companies were undersubscribed in the respective institutional tranches in Korea.
This stems from the bond price hike along with monetary easing stance at home and abroad.
Bond yields, which move inversely with bond prices, were on a downtrend in Korea. Korea’s three-year sovereign bond yield fell over 40 basis points in two months, while the 10-year state bond yield dropped nearly 30 basis points.
Analysts said the results came as the widening financial market volatility sapped investor sentiment and triggered their appetite for safe havens.
The latest were three-year bonds rated AA- by power generator builder Pospower, in the firm’s attempt to raise 50 billion won ($40 million) to build new coal power plants in Gangwon Province.
Despite its comparatively strong capacity to meet its financial commitments, the recent tranche on Tuesday drew just 40 billion won in institutional offerings.
Pospower, an affiliate of Korean steelmaker giant Posco, is scheduled to issue the bonds to back a 4.9 trillion-won project to build plants with a combined capacity of 2,100 megawatts.
It was the last corporate bond deal scheduled in March.
The news came a week after both Kiwoom Capital and Hana Bank recorded institutional undersubscriptions on Friday, marking the first ones for 2020.
The undersubscription forced Kiwoom Capital to reduce its fundraising volume to 30 billion won, from its initial 50 billion-won plan through two BBB+ rated instruments -- the one-year bond and two-year bond.
Hana Bank’s 10-year subordinated bonds, graded AA0, attracted 270 billion won in capital, 10 percent short of its earlier plan. Despite the lack of institutional interest, Hana looks to turn to the retail tranche to issue the bonds worth 350 billion won by Monday, in a bid to better address the lender’s capital requirement.
Both Kiwoom Capital and Hana Bank plan to issue the securities Friday.
Market eyes are on whether investor sentiment gets back on track in April, when companies resume issuing bonds after the 2019 fiscal year ends.
“The most decisive factor in the bond market is how much the global coronavirus impact died down, when companies resume corporate bond issuance in April,” wrote Kim Sang-man, analyst at Hana Financial Investment.
The bigger problem lies in the widening credit spread -- where the difference in bond yield gets larger depending on the bond quality -- which would be reflected in the market three to six months after the coronavirus outbreak, another analyst said.
“As the credit spread widens, risky bond investment would incur higher expenses than any time,” Yoon Won-tae of SK Securities wrote. “It is time for a conservative approach.”
By Son Ji-hyoung (firstname.lastname@example.org