SK hynix (000660.KS), which has emerged as a heavyweight in Korea's bond market, is now scooping up corporate bonds. To effectively manage the vast cash flowing in from the memory chip boom, the company is expanding its investment reach from securities debt to public and private corporate bonds. With asset management firms' capacity to buy corporate bonds recently waning, SK hynix has established itself as an influential institutional investor alongside pension funds and mutual aid associations, market observers say.
According to the investment banking (IB) industry Thursday, SK hynix invested in two-year public bonds issued by NH Investment & Securities and KB Securities in early June this year. The total is estimated at around 250 billion won. Under the structure, securities firm trust accounts entrusted with fund management by SK hynix participated in institutional book-building and took the volume. The spread on the two-year corporate bonds issued by the two securities firms came in below the fair market yield (the company's intrinsic yield set by private bond rating agencies), while the remaining maturities priced above the fair market yield.
This marks the first time SK hynix has bought corporate bonds. Since early this year, the company had purchased bonds issued by financial firms and state-run enterprises under a shelf registration system, but this time it entered the public book-building process with the status of an institutional investor. "SK hynix has been investing in public bonds rated AA0 or higher since early June," an IB industry official said. "Since securities firms are the only issuers of AA0-or-higher bonds waiting in the market, funds are flowing into securities debt."
The market expects SK hynix's corporate bond investment scope to expand further. Samsung Securities and Shinhan Securities, both facing institutional book-building for public bonds early this month, are also observed to be anticipating investment demand from SK hynix. While the bond maturities SK hynix had previously favored were limited to within two years, it is now reportedly reviewing investments in three-year bonds as well. Public and private bonds issued by blue-chip private companies are also cited as being of interest to SK hynix.
Thanks to the memory chip boom, the company is earning cash too vast to handle through bank deposits, and it is steadily expanding its investment reach to manage it effectively. According to financial information provider FnGuide, SK hynix's second-quarter revenue and operating profit forecasts stand at 83.5031 trillion won and 63.9524 trillion won, respectively, up threefold and sevenfold from the same period last year.
SK hynix's investment moves are expected to bring various positive effects to the corporate bond market. Asset management firms had been the main players in public bond book-building, but with their buying capacity recently waning, SK hynix is now counted as an influential institutional investor alongside pension funds and mutual aid associations.
This year, SK hynix has purchased 1.43 trillion won worth of card company bonds rated 'AA' or higher, including those from Samsung, Shinhan, KB Kookmin, Hyundai, and BC Card. "With the Bank of Korea expected to raise its base rate within the year, institutions are generally taking a wait-and-see stance on the market," another IB industry official said. "If SK hynix continues to absorb corporate bond volume for a while, a yield-reduction effect can be expected."
