Korea plans $1 billion in dollar bonds

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Korea plans $1 billion in dollar bonds

Korea is poised to raise $1 billion from its first dollar-denominated bonds in more than four years as credit risk in the region climbs amid stimulus reduction concerns and a possible military strike on Syria.

Asia’s fourth-largest economy is marketing 10-year notes at a spread of about 135 basis points more than Treasuries, a person familiar with the matter said, asking not to be identified because the terms aren’t set. The government last sold $1.5 billion each of five- and 10-year notes in April 2009, according to data compiled by Bloomberg.

International bond sales in Korea have risen 12 percent this half to $5.5 billion from the same period of 2012, as three interest-rate cuts since June last year and a 17.3 trillion won ($15.7 billion) supplementary budget help to fuel an economy forecast to expand 4 percent in 2014, the fastest pace since 2010. Korean dollar securities yield an average 3.3 percent, down from an almost 15-month high of 3.6 percent reached on June 24, JPMorgan Chase & Co. indexes show.

“Now is an appropriate time for the sale given demand is stronger in the second half,” said Yoon Tae-sik, a senior deputy director in the international financial policy division of Korea’s Ministry of Finance. “Domestic companies haven’t been able to issue bonds overseas due to risks linked to North Korea and a reduction of U.S. quantitative easing.”

Korea’s government is joining other state-owned companies in borrowing overseas on speculation the conflict in Syria may start to drive up borrowing costs as the Federal Reserve considers dialing back its monthly bond purchases.

Credit risk heightened after U.S. House of Representatives Speaker John Boehner backed President Barack Obama’s call for action against Syria and leaders of the Senate’s foreign relations panel agreed on a proposal backing military strikes.

Bloomberg

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