Korea Inc. to face refunding risks with record corporate bond maturities

South Korean companies are expected to face refunding risks thanks to record corporate bond maturities in the first half of 2025, as fundraising conditions deteriorate amid the political uncertainties following President Yoon Suk Yeol’s surprise martial law declaration.

Corporate bonds worth 49.8 trillion won ($34.4 billion) are set to mature in January-June 2025 – the largest amount ever for a half-year – including 26.6 trillion won in the first quarter and 23.2 trillion won in the second, according to the Korea Financial Investment Association on Friday.

Domestic companies are likely to seek new bond sales next year, placing pressure on the market, industry sources said.

The credit spread – the difference in yield between two debt securities of the same maturity but different credit quality – has widened since the martial law declaration soured investor sentiment.

The yield spread between the highly liquid Korean government's three-year bond and corporate notes rated AA- on Dec. 19 stood at 67.2 basis points (BPS) — the widest since Feb. 22, the association said.

The gap had narrowed to around 50 bps last month on sustained inflows fueled by expectations of additional interest rate cuts.

The larger spreads are likely to make corporate fundraising for redemption considerably difficult, industry sources said.

PETROCHEMICAL WOES

Growing credit risk among domestic petrochemical manufacturers has contributed to the widening spread.

Korea Ratings Corp. and Korea Investors Service Inc., an affiliate of Moody’s Corp., lowered the ratings of South Korea’s major petrochemical producer Yeochun NCC Co. (YNCC) from A0 to A-, respectively, earlier this month.

The downgrade stoked concerns about a potential early redemption of 705 billion won in bonds issued by the 50:50 joint venture between Hanwha Solutions Corp. and DL Chemical Co. YNCC must repay 70 billion in bonds before maturity if its rating falls to BBB+ or lower.

Lotte Chemical Corp. had been embroiled in disputes with its bondholders, who argued that the company failed to meet certain conditions attached to the bonds sold between September 2013 and March 2023 and thus, must repay them before the debts expire.

PUBLIC FINANCE BONDS

The corporate bond market is expected to face further pressure from a record number of public finance bond maturities in January-June 2025.

Public finance bonds worth 51.8 trillion won are scheduled to mature during the period, the largest ever for a half-year.

Institutional investors are expected to spend money, which is usually plentiful at the start of a year, on refunding the debts of the public finance bonds, industry sources said.

Domestic companies are closely watching the government’s support. Korea plans to operate a 40 trillion won program by the end of 2025 to support the domestic bond and money markets.

“The government will continue its market stabilization policies in 2025, which will significantly ease concerns by corporate bond investors,” said Kim Eun-ki, an analyst at Samsung Securities Co.

Write to Ik-Hwan Kim at lovepen@hankyung.com
 
Jongwoo Cheon edited this article.