Korea debt financing faces woes as $34 bn in corporate bonds mature in H1

South Korea’s financial markets will see nearly 50 trillion won ($34 billion) in corporate bonds mature in the first half of next year — an all-time high for six months — boding ill for companies seeking to raise funds amid deteriorating business conditions.

Industry data showed funding conditions are worsening as the credit spread — the interest rate gap between corporate bonds and government bonds — has widened the most over the past 10 months.

According to the Korea Financial Investment Association and Koscom on Wednesday, an estimated 49.8 trillion won in corporate bonds are maturing in the first half of 2025. That is the largest amount ever for a half-year period.

Some 26.6 trillion won in corporate bonds will mature in the first quarter of 2025 and 23.2 trillion won worth of bonds in the second quarter.

While the need for debt rollover is increasing, industry officials said the funding market environment is far from favorable, particularly after the Dec. 3 martial law declaration incident rattled investor sentiment.

The credit spread, which narrowed to around 0.5 percentage point last month, is rapidly widening.

As of Tuesday, the credit spread of AA minus-rated corporate bonds with 3-year maturity stood at 0.682 percentage point, marking the widest gap since Feb. 21 when it was 0.688.

A widening credit spread indicates that institutional investors are increasingly reluctant to invest in corporate bonds, causing prices of corporate debentures to fall relative to government bonds and creating a situation whereby companies find it hard to raise funds.

HIGHER BOND YIELDS

Corporate bond yields are also on the rise.

The benchmark annual interest rate of AA minus-rated corporate bonds was 3.308% on Tuesday, up 0.016 percentage point from the previous day.

This rate is higher than the 3.22% rate on Nov. 28 when the Bank of Korea lowered its policy rate by a quarter percentage point to 3.00% – its first back-to-back rate cut since the 2009 global financial crisis.

Analysts said the situation raises alarm bells for companies that need to roll over nearly 50 trillion won in maturing corporate debt next year.

Companies will face either higher borrowing costs through a surge in corporate bond yields or unsuccessful bond sales, analysts said.

SK, LG, LOTTE MAY FACE DIFFICULTY IN REFINANCING

Market watchers said conglomerates such as SK, LG and Lotte may face difficulties in refinancing.

SK Group has the largest amount of corporate debt maturing in the first half at 6.25 trillion won, followed by Lotte Group and LG Group with 4.27 trillion won and 18 trillion won, respectively.

Samsung Electronics Co. has 2.75 trillion won in corporate bonds set to mature by the end of June, while Jungheung Construction Co. has 2.26 trillion won in maturing debt.

Hanwha Corp. has 1.55 trillion won in maturing debt and GS Holdings has 1.45 trillion won.

Some companies aim to take advantage of the “fresh-start effect,” which refers to institutional investors' tendency to allocate funds at the beginning of the year.

Steel-to-battery materials conglomerate POSCO Group plans to raise up to 1 trillion won in the country’s first corporate bond issue of 2025.

POSCO, the steelmaking unit of POSCO Holdings Inc., will conduct bookbuilding for corporate bonds worth 500 billion won on Jan. 6.

Sources said the issue could grow to 1 trillion won depending on demand.

LG Chem Ltd. plans to issue 300 billion won in corporate bonds next month.

Write to Ik-hwan Kim and Hyun-Ju Jang at lovepen@hankyung.com
In-Soo Nam edited this article.