Korean bonds heavily oversubscribed in January boom

South Korea’s debt market got off to a strong start this year, as several blue chip companies made a bold return to the bond market for new issues.

Some of them have bumped up their issuance volume, or are considering doing so to meet the demand.

Korean Air Lines Co., the country’s flag carrier, saw its new bonds worth 200 billion won ($140 million) more than three times oversubscribed, drawing 660 billion won in bookbuilding on Jan. 20.

The debt consists of two tranches: 150 billion won with a three-year maturity and 50 billion won in five-year notes. Korean Air will issue them on Jan. 31.

The three-year debt will be offered at 15 basis points (bps) below its implied yield suggested by bond rating companies. The five-year notes will be sold on par with the implied yield. The spreads between the implied and issuance yields are narrower than those Korean Air proposed.

Korean Air is considering raising the issuance volume to as much as 400 billion won.

Last year, Korean Air sold bonds at yields double digits below the implied yield. Its credit rating is A or A+.

The anticipation of further interest rate cuts as early as next month has prompted investors to flock to bonds to lock in current yields, although expected returns are lower than last year, said investment bankers. 

SK Chemicals Co.'s sale of a 100-billion-won bond attracted 752.0 billion won in bookbuilding on Jan. 20. It comprises two notes with maturities of two and three years. Their yields are below the implied yield by 7 and 10 bps, respectively.

Hanwha Energy Corp. saw its 100 billion won in new debt more than seven times oversubscribed, bringing in 706.0 billion won in bookbuilding. The bond, which breaks down to two- and three-year tranches, was sold at 10 and 13 bps below the implied yield, respectively.

The successful debt sale by POSCO, rated AA+, set the tone for the domestic bond market. With the 500-billion-won bond seven times oversubscribed, the unlisted steelmaker doubled its issuance to 1 trillion won early this month.

This month, new bond issues by defense firm Hanwha Aerospace Co. and broadband provider LG Uplus Corp. were more heavily oversubscribed than their offerings last year.

Yet investors say the upcoming debt sale in February by LG Energy Solution Ltd., a rechargeable battery maker, could reverse the course of the buoyant bond market amid a slowdown in electric vehicle demand.

It is reportedly seeking to raise between 800 billion and 1 trillion won. Depending on demand, it may increase the issue to 2 trillion won.

In February of last year, the battery maker raised 1.6 trillion won through bond issues after drawing 5.1 trillion won in bookbuilding. That marked the largest-volume debt sale by a Korean company in a single round.

Write to Jeong-Cheol Bae at bjc@hankyung.com
 

Yeonhee Kim edited this article.