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Bonds

Korea postpones forex bond sale to October

The delay may raise local companies’ borrowing costs due to rising interest rates

By Sep 09, 2021 (Gmt+09:00)

(Source: Getty Images Bank)
(Source: Getty Images Bank)

South Korea’s government delayed a sale of foreign exchange stabilization fund bonds to next month, disrupting local companies’ plans to issue debt.

The Ministry of Economy and Finance postponed the issuance of the foreign currency-denominated bonds worth up to $1.5 billion to early October from the initially scheduled mid-September, according to investment banking (IB) industry sources on Sept. 9.

The postpone perplexed domestic companies planning to raise money in overseas bond markets, as a delay in the bond issue is expected to increase borrowing costs amid a trend of rising interest rates.

Those companies also need to reschedule their bond issues to avoid the timing of the foreign exchange stabilization fund bonds. They may face difficulties in attracting investors if they sell debt when the ministry issues the bonds.

Industrial Bank of Korea, whose major shareholder is the finance ministry, hastened its schedule for the bond sale bookbuilding to next week, but timetables for most other companies have become uncertain. The Korea Export-Import Bank of Korea and Korea Electric Power Corp. have been slated to sell euro- and dollar-denominated bonds, respectively.

There is somce dispute whether the foreign exchange stabilization fund bond sale is really beneficial, given the country’s record $463.9 billion foreign exchange reserves as of end-August. The fund can only be deposited in highly stable and liquid US Treasury bonds. So, the more bonds it issues, the more it loses.

If the government issues the foreign currency bonds up to the $1.5 billion limit, it will increase the country’s debt by more than 1 trillion won ($856.2 million) since only 375 million euro ($443.8 million) worth of the bonds are scheduled to mature this year. Its sovereign debt was already expected to rise to an all-time high of 1,068.3 trillion won due to record spending next year, according to the ministry.

Last year, the ministry issued $1.45 billion worth of the bonds at the lowest yield ever.

Write to Hyun-Il Lee at hiuneal@hankyung.com

Jongwoo Cheon edited this article.

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