September 2012 has begun with the first won (KRW)-denominated note sale in a year by LG Electronics. The deal helped corporate bond offerings in the currency rise almost fivefold this week, with South Korea’s slowing economy generally pushing yields to historic lows.
Asia’s fourth-largest economy failed to meet the central bank’s growth estimates according to a report issued 6 September by the Bank of Korea, which meets to decide interest rates next week. Yields on the nation’s corporate debt generally fall as government yields drop. Korea’s economy grew 0.3% in Q212 from the previous quarter, compared with an initial estimate of 0.4%, the central bank report said. Goldman Sachs has lowered its forecasts for gross domestic product (GDP) expansion to 2.6%, from 3.0%, for 2012 and to 3.5%, from 3.8%, for 2013.
Corporate bond issuance this week increased to KRW1.36 trillion, from KRW280bn last week according to data compiled by Bloomberg. Yields on three-year AA-rated corporate notes fell to 3.24% on 5 September, the least since the Korean Financial Investment Association (KOFIA) started compiling data in 1993. Similarly rated U.S. corporate securities yielded 2.13% on 6 September, according to Bank of America Merrill Lynch (BoA Merrill Lynch) indexes.
Seoul-based LG, the world’s fourth-largest mobile phone manufacturer, took advantage of plunging yields by increasing the size of its offering 50% to KRW300bn won, the data shows. Korea Southern Power and Uamco also sold KRW300bn of debt securities each this week.
“Companies are able to borrow for a longer term and at cheaper costs now,” said Kim Ki Myung, a credit analyst with Korea Investment & Securities, the third-largest arranger of bonds this year. “Even if the Bank of Korea doesn’t change the base rate next week, though that’s unlikely in our view, we should see more and more offerings as borrowers want to secure adequate liquidity amid a slumping economy.”
LG initially planned to offer KRW120bn won of three-year notes and KRW80bn won of five-year securities, according to its regulatory filing on 29 August. The company increased the sale by KRW50bn for each maturity, pricing the three-year debt to yield 3.1% and the five-year bonds to yield 3.19%, Bloomberg data shows.
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