S. Korean companies brace for liquidity crisis in April

South Korean companies are bracing for a possible liquidity crisis in the bond market next month, amid sagging investor sentiment and signs of capital flight due to the coronavirus pandemic, market data showed Sunday.

The illiquidity -- triggered by continuously escalating novel coronavirus fears -- will pose a hurdle to companies when they attract new capital or carry out a refinancing scheme.

A combined 6.5 trillion won ($5.2 billion) in corporate bonds is due to reach maturity in April, according to an estimate from the Bond Information Service of the Korea Financial Investment Association.

This monthly amount was up 10.8 percent from a year earlier and accounted for 13 percent of the total for 2020.

Excluding asset-backed securities, corporate bonds reaching maturity in April will be worth 5.8 trillion won, the largest monthly figure for 2020, according to Korea Investment & Securities.

Of the total, corporate bonds rated below an A- rating took up 17 percent.

These include 240 billion won in BBB+ rated bonds issued by flag carrier Korean Air and distiller HiteJinro’s 143 billion won in bonds graded A, as well as Doosan Heavy’s $500 million of bonds.

In the meantime, Daelim Industrial and Hyundai Development Co. have unveiled plans to raise 300 billion won each in April.

This comes as Korea is already observing signs that investors are walking away from the nation’s corporate bond markets.

The latest institutional tranches for investment-grade corporate bonds in March were undersubscribed. These include plans for power plant builder Pospower to raise 50 billion won, as well as Kiwoom Capital’s BBB+ rated instruments and Hana Bank’s AA graded 10-year subordinated bonds.

“If the investor sentiment fails to improve, institutional underbooking of corporate bonds will continue in April,” Kim Sang-hun of Shinhan Investment wrote in a note.

Kim added that a series of credit rating cuts of Korean companies are leaving their ability to service the debt in question, as their bond yield spread widens.

“Weaker bond market is accelerating the widening of corporate bond yield spreads.”

Another analyst said fixed-income investors spooked by coronavirus fears will turn to more liquid assets instead of corporate bonds amid heightening credit woes.

“As the financial market volatility widens, it is inevitable that the corporate credit market would be hit harder when compared to sovereign bonds or monetary stabilization bonds,” Huh Young-joo of Korea Investment & Securities wrote in a note Sunday.

“There are also concerns about the lack of motivations to draw investors to corporate bonds as Korea moves to issue more sovereign bonds and ponders the next round of the fiscal stimulus.”

By Son Ji-hyoung (consnow@heraldcorp.com)