Corporate bond sales hit 3-month low

Korean corporate bond sales dropped to a three-month low as investors refrained from taking on too much credit risk in light of slowing economic growth.

Offerings fell 21 percent to 4.25 trillion won ($3.92 billion) in November, from 5.36 trillion won in October, according to data compiled by Bloomberg. Benchmark yields for companies in Asia’s fourth-largest economy rose 8 basis points to 3.37 percent, the biggest monthly increase since March, according to the Korea Financial Investment Association.

Issuance lags last year as GDP growth slowed to a three-year low, making it more difficult for companies to raise money. Manufacturers’ confidence for December fell to the weakest since April 2009 as a strengthening won threatens a pick-up in exports, which make up half the economy, the central bank said Thursday, citing an index which measures expectations.

“Demand for corporate bonds wasn’t huge this month amid lingering concerns over a slow economy,” Choi Jin-young, a portfolio manager who helps manages the equivalent of $923 million of fixed-income funds at Mirae Asset Global Investments, said. “Corporate bonds, especially those with low credit ratings, appear less attractive.”

Investors are seeking an extra yield of 53 basis points, or 0.53 percentage point, more than three-year Korean sovereign debt to buy corporate notes, versus 52 at the start of the month and 48 on Sept. 24, a five-year low.

Top ratings

The five largest issuers this month are all rated AA- or above by Korea’s three major ratings companies, data compiled by Bloomberg show. AA- is the fourth-highest investment grade. The five made up 42 percent of sales this month.

Mirae Asset’s Choi said he’s holding higher-graded company bonds, and doesn’t plan to buy securities rated less than A.

Daewoo Shipbuilding & Marine Engineering, rated AA-, was the biggest borrower, the data show. The world’s No. 3 shipbuilder by revenue sold notes due November 2015 to yield 3.34 percent, or 51 basis points more than similar-maturity government debt, and five-year securities to yield 3.5 percent, or 60 basis points above Treasury bonds.

The Seoul-based company plans to use the proceeds to repay short-term bank loans, Choi Jong-yong, a senior manager in the Treasury group, said.

“Our rates on the last bond sale were determined with underwriters in line with market rates,” he said. “There are no plans for additional issuance for the rest of the year, but if the market situation improves, we could consider it.”

Tighter spreads

The shipbuilder paid a spread of 64 basis points to sell three-year notes and 75 basis points to sell five-year debt when it raised 500 billion won in July, data compiled by Bloomberg show. Average spreads on three-year corporate bonds were 58 basis points in July, compared with 87 at the start of the year.

Samsung C&T raised 400 billion won this month, its first offering since January, while Daewoo Securities, Uamco and National Agricultural Cooperative Federation sold 300 billion won of notes each, the data show.

Samsung C&T, a trading unit of Korea’s biggest industrial group, will use the proceeds to repay debt and increase working capital, Min Byeong-hoon, a manager in the corporate communications department, said.

Yield increase

Yields for companies with a AA- rating are set for the biggest monthly increase since March, when they jumped 9 basis points, according to financial association data. Borrowing costs fell from 4.21 percent at the start of 2012 to a record low of 3.23 percent on Oct. 10, according to the data.

Notes sold by AA rated U.S. companies yielded 1.98 percent as of Friday, little changed on the month, Bank of America Merrill Lynch indexes show.

Elsewhere in Korea’s markets, the yield on the sovereign 3.25 percent bond due June 2015 rose 7 basis points in November to 2.84 percent as of 5:30 p.m. in Seoul, prices from the Korea Securities Dealers Association show.

The won has appreciated about 5.78 percent versus the dollar since the end of June, the best performer among Asia’s 11 most-traded currencies, according to data compiled by Bloomberg. It rose 0.1 percent to 1,082.85 against the dollar yesterday.

Bloomberg