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Corporate bonds

Delta variant, rate hike views hurt Korean lower-rated corporate bond sales

Demand for Doosan Infracore, AJ Networks’ bonds fall short of their targets

By Jul 22, 2021 (Gmt+09:00)

South Korean companies with low credit ratings are facing difficulty to raise money in bond markets. (Source: Getty Images Bank)
South Korean companies with low credit ratings are facing difficulty to raise money in bond markets. (Source: Getty Images Bank)

South Korean companies with low credit ratings around BBB are suffering weaker demand in the primary market. A spread in the Delta coronavirus variant and expectations of the Bank of Korea’s interest rate hike soured investor sentiment.

Earlier this month, those riskier corporate debts had been sold out on strong demand from high yield fund managers and relatively loftier interest rates. But demand for such bonds sold this week fell short of issuers’ targets.

Doosan Infracore Co., a leading South Korean heavy machinery and construction equipment maker, on July 21 received 67 billion won ($58.3 million) worth of orders for a sale of a three-year bond from institutional investors, missing its target of 80 billion won, according to the investment banking industry. Its corporate bonds are rated at BBB currently, but ratings agencies are reviewing it for an upgrade since Hyundai Heavy Industries Holdings Co. was set to buy a controlling stake in the company. It was seen unusual for a company whose credit ratings will rise in a near term to fail to raise as much money as planned in bonds.

AJ Networks Co., a domestic rental company, whose credit ratings is BBB+, received 19 billion won worth of orders for a 1-1/2-year bond to raise 30 billion won on July 19. KB Securities, Shinhan Investment Corp. and Kiwoom Securities, which underwrote the sale, took the unsold bond.

“As the Bank of Korea is more likely to raise interest rates within this year, the low-rated corporate bond market is taking a hit,” said an asset management company official. “Institutional investors also tend to lie low quickly as the rapid spread of the highly contagious Delta variant added concerns over a potential double-dip in the global economy.”


Earlier this month, the local primary market for corporate bonds with ratings around BBB could enjoy an unprecedented boom thanks to low interest rates and ample liquidity. Companies rushed to issues bonds to raise funds in advance at lower costs and institutional investors bought those debts, which provided higher yields than treasury bonds.

High yield fund managers aggressively purchased riskier bonds issued by companies with lower ratings that planned to go public in the second half. A high yield fund has right to receive 5% of allotted shares for public offering earlier than other investors if it invests 45% of its assets in corporate bond with BBB ratings or below, or companies listed on the Korea New Exchange (Konex), a stock market for small and medium-sized enterprises (SMEs).

But the market sentiment on the riskier bond sales quickly cooled off from mid-July. Bank of Korea Governor Lee Ju-yeol on July 15 sent a strong indication of tightening later this year, adding to expectations of higher borrowing costs, amid predictions that the Federal Reserve may scale back its massive asset purchase program. Surging Delta variant infections also hurt investor sentiment.

Write to Eun-Jung Kim and Hyun-Il Lee at

Jongwoo Cheon edited this story.

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