Issuance of corporate bonds declines 7% in 2016

The total amount of corporate bonds issued in South Korea declined 7 percent in 2016 from a year earlier, amid rising volatility in global bond yields and political uncertainties, the Korea Securities Depository said Wednesday.

The volume of corporate bonds issued last year reached 310.8 trillion won, down from 334.6 trillion won in 2015, the state-run custodian and settlement services provider said.

It is the first decline since 2013 when the issuance of corporate bonds fell 0.5 percent on-year.

By type, publicly placed bonds accounted for 88.6 percent of the total issuance, while privately placed bonds made up the remainder.

The volumes of both public bonds and private bonds shrank 7.5 percent and 8.9 percent, respectively, in 2016 from a year earlier, the KSD said.

The issuance of foreign currency-denominated bonds, or so-called “kimchi bonds” that are issued by local firms to borrow foreign money for Korean won financing, sharply fell by 28.4 percent on-year to 4.3 trillion won in 2016.

Among them, the proportion of dollar-denominated bonds fell slightly to 97.1 percent from 97.9 percent.

No local company issued any yuan-denominated bond last year, which was a contrast to the 376.4 billion won issued in 2014 when yuan-denominated bonds and certificate of deposits were launched in Korea.

“It may seem a sharp decrease when you look at changes in the foreign currency-denominated bonds last year, but the kimchi bond market has been almost ‘dead’ since 2010 in Korea,” said Kim Jeong-mi, head of the securities registration team at the KSD.

“Especially after the US Federal Reserve’s indication on rate hikes, bond yields have become more volatile. Only those with high credit ratings can issue bonds these days,” she said.

According to industry data, the three-year bond yield issued by companies with AA- credit rating remained relatively high at 2.1 percent Monday, after spiking to 2.22 on Nov. 24 on expectations that US President-elect Donald Trump’s policies would push up inflation and market interest rates.

Meanwhile, 102 bond market analysts in 77 financial institutions in Korea all predicted the Bank of Korea would keep the base rate at a record low of 1.25 percent at the upcoming monetary policy meeting Friday, the Korea Financial Investment Association said.

The analysts were quoted by the KOFIA as saying that “although downward risks in the economy coming from global and domestic uncertainties might pressure the BOK to lower the interest rate, the risks involving the US Fed’s rate hikes and rising household debt in Korea will make the central bank hold the rate unchanged.”

By Kim Yoon-mi (yoonmi@heraldcorp.com)