Arirang bonds make something of a comebackBonds named after a type of Korean folk song often about unrequited romance are getting a bit more love.
Nomura Holdings sold 150 billion won ($135 million) this week, in the first so-called Arirang note since an offering in 2012 by S&C Engine Group, a Hong Kong-based maker of lawn mowers. Nomura is only the second global investment bank to issue them since the 1995 start of the local-currency market for foreign issuers, which has had only $2.1 billion of issuance compared with $448.7 billion in Japan’s Samurai notes.
“The Nomura bond will open the door to more foreign issuers selling Arirang bonds,” said Kwak Seok-joo, a general manager at NH Investment & Securities. “The status of the currency would be improved if this market develops more.”
More financing in won could bolster the case for internationalization of the currency, which is not fully exchangeable in the global market and is used in only about 2.5 percent of payments for Korean exports. Nomura’s sale comes amid record low corporate yields in Asia’s fourth-biggest economy and the cheapest cost of swapping won into U.S. dollars in six years.
Nomura International Funding, a wholly-owned Singapore unit of the Japanese brokerage, priced its 10- and 15-year notes guaranteed by the parent at 3.1 percent and 3.8 percent respectively, according to a June 1 filing. That exceeds the average 2.932 percent for similarly rated 10-year corporate bonds in the country. The securities are rated AA+ and callable after one year.
Arirang bonds may attract long-term investors given the higher yields than on company debentures with the same ratings, according to Lim Jung-min, an analyst at NH Investment.
The Asia Development Bank became the first foreign issuer to offer won bonds in the domestic Korean market when it sold 80 billion won of notes in 1995. Since then, there have been nine years including 2014 with no Arirang issuance at all, Bloomberg- compiled data show.
Nomura International Funding, which has issued notes in currencies including the Chinese yuan and Indonesian rupiah, plans to use the proceeds to refinance bonds denominated in Australian and U.S. dollars, its prospectus shows.
The cost for companies to convert won bond proceeds into U.S. dollars dropped to the lowest since January 2009 on May 29, according to data compiled by Bloomberg. It had surged in 2009 months after the collapse of Lehman Brothers Holdings.
There is still room for the expenses to decline further, according to Lee Hee-eun, rates strategist at Standard Chartered Bank in Singapore.
Credit-default swaps insuring the nation’s bonds against non-payment dropped to 45 basis points on May 25, the lowest since December 2007, according to data provider CMA.
Arirang securities could help expand Korea’s bond market and capital markets, said Joo Min-geun, a senior credit analyst at Franklin Templeton Investment Trust Management in Seoul.