Korean Inc. Debt Sales Plunge 62% in September on High Interest Rate
Corporate bond issuance in South Korea plunged more than 60% in September from a year ago, suggesting companies are struggling to fund themselves due to soaring interest rates. interest following successive increases of 75 basis points in rates by the US Federal Reserve to control inflation.
According to multiple financial authority and financial investment industry sources on Thursday, corporate bond issuance between September 1 and September 23 fell 62 percent year on year to 2.8 trillion won ( $1.96 billion). Problems also fell by almost half compared to the same period in 2020 after the onset of Covid-19.
The interest rate for three-year debt issued by a company with AA credit reached a record high of 5.12% as of September 23 and that with BBB- 11.04%.
While global monetary tightening is expected to accelerate following the US Fed’s third successive giant leap to raise its rate by 0.75 percentage points, Korean companies are expected to remain reluctant to sell debt to raise funds, which could result in a cash shortage.
According to data released by the Financial Monitoring Service on Thursday, corporate bond issuance stood at 20.5 trillion won in August, down 0.4 percent from the previous month. Issuance of financial notes increased while that of general corporate bonds decreased.
General corporate bond issuance stood at 1.3 trillion won in August, down 59.3 percent from the previous month. With less debt maturing in August, companies were in no rush to sell debt to pay off. Issues to finance operating funds also declined.
Bonds rated AA or better accounted for 88% of total issuance.
Equity issuance in August also fell 47% on the month to 372.3 billion won. Initial public offerings (IPOs) plunged 66.8% in a month to 181.2 billion won. New equity issues to raise capital, on the other hand, rose 33.1 billion won on the month to 191.1 billion won in August.
Issuance of commercial paper and short-term debentures totaled 117.6 trillion won in August, down 11.2 percent from July.
By Kim Myung-hwan and Lee Eun-joo
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