Korean companies' net issuance of bonds in H1 hits six-year low

South Korea’s net issuance of corporate bonds during the first half of 2022 was its lowest in six years, according to Korea Financial Investment Association (KOFIA) data on Thursday. Net issuance of bonds is the gross issuance of bonds minus redemptions during a certain period.

The gross issuance of corporate bonds in Korea amounted to 49.76 trillion won ($38.3 billion), and redemptions reached 41.41 trillion won during the first half. The 8.35 trillion won in net issuance decreased by 66% compared with 24.6 trillion won in the same period of 2021. This marks the lowest point since the first half of 2016 when corporate bond net issuance reached 2.05 trillion won.

The monthly net issuance of corporate bonds also steadily decreased for the first five months of the year – starting at 3.31 trillion won in January, it then declined to 2.2 trillion won in February and 1.94 trillion won in March. The net issuance plunged to 129.5 billion won in April and minus 596.1 billion won in May.

The decline in net issuance of corporate bonds is due to interest rate hikes and the economic downturn, investment banking sources said. The yield spread between unsecured corporate bonds of AA- and treasury bonds, both with three-year maturities, reached 84 basis points on July 6, the highest point over the past year.

Some Korean firms have seen tepid investor interest in their bookbuilding for bond sales. GS Entec Corp., an energy and plant equipment manufacturing affiliate of conglomerate GS Group, initially planned to raise 80 billion won through a bond sale. However, it saw only 20 billion won demand for its bookbuilding on June 30. IGIS Asset Management Co., the largest real estate fund manager in Korea, saw 14 billion won in bookbuilding demand for 15 billion won worth of its 1.5-year bonds last month, despite oversubscription for its two-year bonds.

Write to Hyun-Ju Jang at blacksea@hankyung.com
Jihyun Kim edited this article.