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Yeouido, the financial district of Seoul South Korean companies hesitated to raise funds as corporate bond yields surged. More firms repaid existing debts and postponed issuances of new bonds, stoking concerns over a potential decline in corporate investment.Sales of straight corporate bonds in the two months to March 30 fell 19.9% to 15.8 trillion won ($13.1 billion) from a year earlier, according to the Korea Financial Investment Association. Net issuance excluding repayment of existing corporate bonds at maturity more than halved to 3.5 trillion won from 8.3 trillion won a year earlier.That came as bond yields surged to eight-year highs in a short period of time, forcing more companies to delay issuances, market sources said.“Corporate finance departments that prepared to sell bonds postponed issuances, saying they will wait and see,” said an official that is in charge of investment banking at a major local brokerage.An average yield of three-year corporate bonds with the credit rating of AA- stood at 3.36% as of March 29 in the secondary market, up more than 1 percentage points compared to the beginning of this year. To issue bonds, companies need to commit additional yields of 0.3 percentage point to market interest rates.11 TRILLION WON IN BONDS TO MATURE IN TWO MONTHSSome market participants expected repayments to exceed bond issuances in the coming months. About 11 trillion won in corporate bonds are scheduled to mature in April and May, according to KIS Pricing Inc., an affiliate of Moody’s. Lotte Chilsung Beverage needs to repay 270 billion won and CJ Logistics has to pay back 210 billion won in April. Lotte Chemical Corp. and Kumho Petrochemical Co. also need to repay 190 billion won and 150 billion won, respectively, next month. In May, SK Hynix Inc. and LG Chem Ltd. must pay back 410 billion won and 400 billion won, respectively.Most of them have yet to finalize plans for bond sales, except Lotte Chemical that raised 500 billion won in February through bond issuance.Cash-rich companies such as SK Hynix and Kumho Petrochemical may either repay the maturing bonds or refinance with short-term bonds, IB industry sources said. Major conglomerates such as Hyundai Motor Group with large investment plans that need billions of dollars will have to set up new financing strategies, they added.Companies with poor credit ratings need to manage their financial stability as funding costs rose more.“Firms with high debt ratios must consider ways to cut debts, assuming a crisis situation,” said Yoon Jeongsun, a business administration professor at Kookmin University in Seoul.By Hyun-Il Leehiuneal@hankyung.comJongwoo Cheon edited this article.
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