Brokerage firms' bonds draw investors amid rate cut hopes

South Korean brokerage firms are ramping up sales of long-term bonds to refinance their loans by repaying short-term debts in hopes of a rate cut by the US Federal Reserve.

KB Securities Co. held bookbuilding on Monday to sell 200 billion won ($143 million) worth of bonds rated AA+. The bond issue breaks down into 50 billion won in bonds with an 18-month maturity, 70 billion won for two-year maturity and 80 billion won for three-year maturity.

The brokerage house drew 1.32 trillion won in bids, including 360 billion won for the 18-month maturity bonds, 320 billion won for the two-year bonds and 640 billion won for the three-year bonds. KB is considering expanding the bond issue to 400 billion won, banking sources said.

KB plans to use the proceeds to repay their 450 billion won worth of commercial papers maturing in June.

Kyobo Securities Co., which sold new bonds for the first time in a year and five months on April 1, saw its new bond oversubscribed 10 times. The brokerage attracted more than 1.5 trillion won from investors for its 150 billion won debt and increased the issuance to 300 billion won.

Kiwoom Securities Corp. and Daishin Securities Co., with ratings of AA-, will gauge investors’ demand for their bonds later this month. Kiwoom and Daishin plan to issue up to 300 billion won and 200 billion won worth of debts, respectively.

But brokerage firms may face challenges in their bond sales later this year due to growing uncertainties over the Fed’s rate policy and geopolitical concerns, banking sources said.

As US consumer prices rose more than expected last month, analysts view that the Fed will delay rate cuts until the fourth quarter of this year.

Mid-sized brokerages, which have higher risks of real estate project loan delinquencies, could face more difficulties with bond issuance due to the higher-for-longer rates, sources added.

Write to Hyun-Ju Jang at blacksea@hankyung.com
Jihyun Kim edited this article.