April 1 (Bloomberg) -- Borrowers led by GS Caltex Corp., South Korea’s second-largest oil refiner, and Hana Financial Group Inc. more than doubled bond sales this year as they raced to raise cash before the nation’s $13 billion in stimulus measures increase interest costs.
Companies sold 19 trillion won ($13.8 billion) in local- currency notes in the first quarter, the most in at least a decade and up from 8.3 trillion won in the same period a year earlier, according to data compiled by Bloomberg.
“There seems to be concern among companies that if they wait too long costs may become more expensive” as the government increases borrowing, said Lee Jung Joon, a fixed- income analyst at Kyobo Securities in Seoul.
South Korea added a 17.7 trillion won stimulus package on March 24 to the 51 trillion won in spending pledged over the past year to support an economy heading for its first recession since the Asian financial crisis a decade ago. The government plans to finance 16.9 trillion won of the stimulus by selling debt, pushing this year’s bond sales up 57 percent to a record 81.6 trillion won, the finance ministry said.
The yield on the benchmark 4.75 percent government note due 2014 has risen to 4.69 percent from 3.79 percent at the end of last year on concern sovereign bond auctions will overwhelm investor demand.
Companies across Asia risk being crowded out of “fickle capital markets” as governments increase bond sales to pay for their stimulus measures, according to a Feb. 10 report by the Asian Development Bank, which was formed in 1966 to help countries fight poverty.
Maturing Debt
As of the end of December, South Korea’s banks and highest- rated companies had about $195 billion in debt due to mature this year, compared with national foreign currency reserves of $201 billion, according to central bank data. Moody’s Investors Service said in January that more companies in Asia are facing default risks as the seizure in credit markets makes it harder to refinance maturing debt.
GS Caltex sold 400 billion won of 5.19 percent notes maturing 2012 in February to yield 145 basis points more than similar maturity government debt. The Seoul-based company issued 300 billion won of 6.49 percent three-year notes at a spread of 68 basis points in July, Bloomberg data show. A basis point is 0.01 percentage point.
Seoul-based Hana Financial, which sold 300 billion won in 5.3 percent notes in January, plans to sell the first bonds under a $100 billion guarantee offered by Korea’s government last year. The bank may need to pay a 6.25 percent yield on the three-year notes to get a “decent size” sale done, Hong Kong- based Calyon analyst Brayan Lai said in a March 26 interview.
Dollar Shortage
The finance ministry said on Feb. 26 that it wants to increase investment from overseas to help ease a shortage of foreign currency. The won slumped 5.5 percent against the dollar last quarter, making it the worst performing Asian currency this year. The economy shrank 3.4 percent in the fourth quarter amid a slump in exports of cars, ships and mobile phones.
South Korea sold $59 billion of foreign government and agency bonds to help local banks and companies repay maturing debt as the financial crisis starved the nation of dollars, the Bank of Korea said in a report yesterday.
“Korean corporates seek to benefit from the country’s cheap currency by borrowing in dollars and converting those proceeds into won on an unhedged basis,” said Scott Bennett, a fund manager at Aberdeen Asset Management Ltd. in Singapore, who oversees $800 million of Asian debt.
Overseas Sales
Seoul-based SK Telecom Co., South Korea’s biggest mobile- phone company, sold $333 million in 1.75 percent convertible bonds, while Pohang-based steelmaker Posco issued $700 million of five-year, 8.75 percent notes this month in Korea’s first corporate dollar bond sales of the year, Bloomberg data show.
Korea Railroad Corp., based in Daejeon, hired five banks to help it sell bonds overseas, spokesman Kim Joong Hak said March 17. The rail operator sold $500 million in 5.375 percent bonds maturing 2013 in May that yield 8.4 percent, according to Royal Bank of Scotland Group Plc prices. The notes yielded 10.71 percent Oct. 28 and 8.8 percent Feb. 23.
Seoul-based Samsung Heavy Industries Co., the world’s second-biggest shipyard, will sell 700 billion won in bonds to expand docks and for working capital, it said in a March 16 filing. A week later rival Daewoo Shipbuilding & Marine Engineering Co. said it plans to raise 500 billion won from a bond sale so it has money ready to pay suppliers.
Posco spokeswoman Ko Min Jin and communications officials at GS Caltex and Samsung Heavy declined to comment on their companies’ borrowing plans.
Working Capital
“For companies it’s very important to have plenty of cash on hand,” said Park Se Girl, a fund manager who oversees the equivalent of $1.4 billion at Meritz Asset Management Co. in Seoul. “It’s not that they are running out of cash, but more because they know they have to prepare for a recession.”
Asia’s fourth-largest economy shrank for the first time in 11 years in the final three months of 2008 as exports to the U.S., Europe and China fell. State spending on loans, infrastructure and training announced March 24 will boost economic growth by 1.5 percentage points and help create 552,000 jobs, according to government estimates.
“While the overall market sentiment hasn’t improved, we are seeing some demand for bonds sold by big companies that have good credit ratings,” said Lee at Kyobo. “Because people are looking for higher returns on investment, a lot of them are turning to corporate bonds that have very low risk of default.”
To contact the reporters on this story: Tom Kohn in Hong Kong at tkohn@bloomberg.net;
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