Korean corporates rush to issue new bonds

[THE INVESTOR] Korean companies are scurrying to issue new corporate bonds to raise cheap money as the country’s central bank recently cut its key rate to a historic low. 

POSCO Daewoo, a trading company, is poised to issue new debt worth 100 billion won (US$ 85.5 million) early July in a bid to pay back its 200 billion won worth of bonds that mature on Nov. 16.

“We plan to issue the bonds in advance due to the current low interest rate. If the US raises its rate during the second half of this year, Korea would likely follow suit,” a POSCO Daewoo said. 

Borrowers are racing to lock in current interest rates, which are, in part, based on government Treasury yields, ahead of a possible US rate hike in the latter half of 2016.

On June 8, the Bank of Korea slashed the key rate to a new record low of 1.25 percent, marking the first rate cut in 12 months.

Hana Bank, CJ E&M and LSIS are among the companies issuing new debt this month.

Ahead of 300 billion worth unguaranteed subordinate bonds which expire in September, Hana Bank will issue the same type of debt on June 24.

“As many predict that the US Federal Reserve would hike its benchmark interest rate in September, Korean firms seem to have decided to raise funds before the event,” said Moon Hong-chul, analyst at Dongbu Securities.

By Park Han-na (hnpark@heraldcorp.com)