Corporate bond sales finally show some life

LG Electronics and GS Holdings led Korean companies expanding bond offerings this month as demand improved on a global economic recovery and a clampdown on state-owned enterprise issuance curbed supply.

Total sales of won-denominated corporate debt has jumped to 2.27 trillion won ($2.12 billion) in January, almost three times the issuance in the same period a year ago.

LG Electronics said on Jan. 20 it increased an offer of debt maturing in as much as 10 years to 500 billion won from an original 300 billion won. GS Holdings, Hyundai Steel and E-Mart all increased the size of their issues by at least 33 percent.

President Park Geun-hye has restricted SOE (state-owned enterprises) borrowing to reduce public-sector debt, even as U.S. and European recoveries encouraged the Bank of Korea to forecast 3.8 percent economic growth in 2014, accelerating from 2.8 percent last year.

Corporate debt has rallied, with the extra yield investors demanding to hold AA- rated three-year notes over the sovereign dropping 8 basis points to 43 basis points since Dec. 31

“It’s all about supply and demand,” said Kim Sang-hun, a credit analyst at Shinhan Investment, the fifth-largest arranger of local debt in 2013.

“Sales of SOE bonds have dropped rapidly. That’s why funds are being concentrated in these corporate bonds, regardless of fundamentals.

The ample demand meant LG had no problem selling 10-year notes.”

GS Holdings, which controls Korea’s second-biggest oil refiner, increased the size of its latest offering to 490 billion won after receiving orders of about 640 billion won, according to a Jan. 13 regulatory filing.

The company, which has a creditworthiness score of AA from domestic ratings companies, originally said it planned to sell 300 billion won to finance the purchase of a stake in STX Energy.

GS Holdings and LG International agreed on Dec. 27 to buy a combined 71.9 percent interest in STX Energy for 630.7 billion won from Orix. GS Holdings will pay 564.9 billion won for a 64.4 percent share.

“We no longer need to lean on a bank loan because we received more orders than we expected for our bonds,” Lee Sung-wook, a spokesman for GS Holdings, said in a phone interview on Jan. 22. “The extra demand seemed to show investors are favorable regarding our STX Energy purchase.”

LG Electronics, the world’s second-largest seller of televisions, received 800 billion won of orders when it priced its bonds on Jan. 17, according to a regulatory filing. Bloomberg