Company funding up slightly in first half 2019

Corporate financing was up slightly in the first half of the year as low interest rates made debt issuing relatively attractive.

In the first six months of the year, companies raised 88.3 trillion won ($74.7 billion) issuing equity and selling bonds, which is 1.46 trillion won more than in the first half of 2018.

According to the Financial Supervisory Service (FSS), this is a 1.2 percent increase compared to the previous year. The increase was primarily the result of more bond issuance.

With interest rates still low, companies sold bonds to take advantage of the cheap money. It is likely that this trend will continue with the central bank’s recent moves.

While the market was expecting the Bank of Korea to hold rates steady this month, the bank cut the key interest rates 0.25 percentage points to 1.5 percent, citing weakening economic growth due to the trade tensions between the United States and China and Korea and Japan.

The FSS report showed that company stock issuance fell 61 percent to 2.2 trillion won compared the year earlier period. That’s 3.5 trillion won less than in the first six months of 2018.

Paid-in capital increases in the first half shrunk significantly. While there were 34 paid-in capital increases in the first half of 2018, this year, it dropped to 20. As a result, investment secured through paid-in capital increases declined 73.1 percent from 5.2 trillion won in 2018 to 1.4 trillion won.

Funding secured through IPOs increased 52.8 percent from 546.4 billion won to 834.8 billion won.

The vast majority of funding was via the bond market.

In the first half, nearly 87 trillion won worth of corporate bonds were issued, which is a 5.5 percent increase, or 4.5 trillion won, more than the same period a year earlier.

Although most bonds were sold by issuers with good credit ratings, the fastest growth was by issuers with lower credit scores.

Sales by companies with credit scores of AA and higher were up 15 percent from 2018, at 17.8 trillion won. Those with credit scores of AA or higher were 69.4 percent of the total, a drop from the 75.1 percent in the first half of 2018.

Those with credit scores of BBB or lower surged 69.3 percent to 1.5 trillion won. They were 6 percent of the total, up from 4.4 percent.

As of the end of June, the corporate bonds balance stood at 503.6 trillion won, up 8.6 percent, or 39.9 trillion won, from a year ago.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]