SMEs are frozen out of corporate bond market

Though the total volume of corporate bonds issued in Korea in April increased 28 percent compared to the previous month, all of the capital went to large companies, not to small- or midsize firms.

According to the Financial Supervisory Service yesterday, a total of 5.56 trillion won ($4.99 billion) worth of corporate bonds was issued last month, up 28 percent from March’s 4.3 trillion won. The FSS said that 90.8 percent of the bonds was issued by companies with higher than A credit ratings. Bonds issued by companies with BBB ratings accounted for 6.5 percent.

No company with a rating lower than BB issued bonds last month.

“Small- and midsize firms [with lower than a BB rating] have not issued a single corporate bond since December of last year,” said an FSS official.

Concerns have been growing among small- and medium-size companies over the difficulty they face raising money. A traditional way is to issue corporate bonds. With the sluggish economy, however, financial institutions including banks have been reluctant to help small- and midsize firms go to market, thinking they have a higher risk of not being able to pay back the principle on the bonds before maturity.

The Park Geun-hye administration has been promising measures to help SMEs raise capital more easily. When Choi Soo-hyun, governor of the FSS, was appointed in March, the first thing he did was visit an industrial complex in Changwon, South Gyeongsang, and meet with heads of SMEs. At the time, he said the FSS would look for ways to “accelerate SME’s direct financing including issuing corporate bonds and shares so that they can access capital more easily.”

By Lee Eun-joo [angie@joongang.co.kr]