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Rights offerings

S.Korea's share issues set to hit fresh high of $17 bn by year-end

By Nov 25, 2020 (Gmt+09:00)

Yeouido, a major financial district in Seoul
Yeouido, a major financial district in Seoul

Credit crunch concerns from the early days of the COVID-19 outbreak seem long ago as South Korea-based companies' capital raising nears an all-time high alongside an increase in bond and rights issues.

Companies' share issues, including capital increases and initial public offerings, have reached 13.4 trillion won ($12.1 billion) so far this year, according to the Korea Exchange and market data provider FnGuide on Nov. 24.

The country's share issues are expected to set a fresh record to reach 19 trillion won ($17.2 billion) by the end of the year -- outperforming the previous record of 18.2 trillion won in 2017.

Domestic companies have been aggressive in issuing corporate bonds this year, totaling 51.7 trillion won in bond issues to date -- and edging closer to the record 55.2 trillion won issued in 2019.

RIGHTS OFFERINGS EXCEED 6 TRILLION WON


An increase in rights offerings played a pivotal role in this year's booming stock market. Currently, the rights offerings of some 24 listed companies amount to around 6.1 trillion won ($5.5 billion), marking the first time rights offerings have exceeded third-party capital increases.

Korean Air Lines Co. announced a rights offering worth 2.5 trillion won to acquire Asiana Airlines Inc. alongside POSCO Chemical Co. (1 trillion won), Doosan Heavy Industries & Construction Co. (1.2 trillion won), CS Wind Corp. (350.3 billion won) and Doosan Fuel Cell Co. (336 billion won).

Large-scale capital raising via rights offerings is often unwelcomed as existing shareholdings will be diluted. However, the tune has changed of late due to abundant market liquidity alongside investors betting on companies’ growth potential.

S.Korea's top airline Korean Air to raise 2.5 trillion won via rights offering to acquire Asiana Airlines
S.Korea's top airline Korean Air to raise 2.5 trillion won via rights offering to acquire Asiana Airlines

For example, Korea-based wind tower manufacturer CS Wind Corp. announced its plans to raise 350.3 billion won ($316.3 million) via a rights offering to invest in the construction of two wind tower production facilities in the US.

Following the announcement the company saw its share price rise as market players expect the US investment to boost the company's growth.

This was the same for POSCO Chemical and Doosan Fuel Cell, which saw their share prices climb following announcements of rights offerings.

BOND AND RIGHTS ISSUES TO REMAIN POPULAR NEXT YEAR


There has also been a rise in bond issues such as convertible bonds and bonds with warrants. This year, the total amount of corporate bond issues touched 6.5 trillion won ($5.9 billion) -- much higher than last year's 5.4 trillion won.

“There are increased cases of companies raising funds for M&As and facility investment to prepare for the post-coronavirus era,” said Lee Sang-heon, an analyst at Hi Investment & Securities Co.

The trend is likely to carry over into next year backed by the likelihood that the share price uptrend will continue, according to Hwang Sei-woon, a research fellow at Korea Capital Market Institute.

“Even if there is a slowdown in bond issues, demand for IPOs and capital increases is likely to remain,” said Hwang.

Write to Jin-hyoung Cho and Hyeong-ju Oh at u2@hankyung.com

Danbee Lee edited this article.

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