The corporate bond market, quiet until recently, appears to be gearing up again. Following Kiwoom Securities and Hanjin last week, three companies this week — SK ecoplant, Lotte Chemical, and KCC — plan to conduct book-building for corporate bond issuances totaling 500 billion won. The move is seen as companies resuming fundraising after the Bank of Korea's base rate hike this month clarified a rate path that had remained uncertain for several months.
According to the investment banking (IB) industry on the 22nd, SK ecoplant conducted book-building for its corporate bond issuance that day, while KCC and Lotte Chemical plan to proceed on the 23rd.
SK ecoplant plans to raise a total of 100 billion won through this bond issuance. Its maturity structure (tranches) consists of one-year, one-year-and-six-month, and two-year notes. KCC plans to raise a total of 200 billion won in two-year and three-year notes, while Lotte Chemical — which is issuing bank-guaranteed corporate bonds again following April this year — aims to raise 200 billion won in three-year notes.
The move is interpreted as companies resuming fundraising after the BOK raised its base rate by 0.25 percentage point this month, from 2.5% to 2.75% per annum, easing the uncertainty that had pervaded the corporate bond market. However, with the possibility of further base rate hikes still remaining, issuance is concentrated in maturities of three years or less. An IB industry official noted, "This base rate hike has made it possible to predict the number and scale of hikes," while adding, "Uncertainty remains over the continuing tailwind in semiconductors and the resulting ripple effects."
The market expects institutional carry demand to revive, given that the base rate hike has been largely priced into market rates in advance and corporate bond yields remain high. However, the prevailing view is that a concentration of funds toward high-grade issues could emerge in this book-building as well. In particular, Lotte Chemical is being issued with a AAA credit rating through the bank's payment guarantee, so institutional demand is expected to be concentrated there.
For this reason, the industry consensus is that the success of A-minus-rated SK ecoplant will serve as a gauge for the corporate bond market's recovery. On the 22nd, SK ecoplant received valid orders worth about 987 billion won against its 100 billion won target. Specifically, 290 billion won was submitted for the 50 billion won one-year tranche, 464 billion won for the 30 billion won one-year-and-six-month tranche, and 233 billion won for the 20 billion won two-year tranche.
Its funding costs are also expected to be significantly lowered. Applying a spread of minus 30 to plus 30 basis points (1bp=0.01 percentage point) to the fair market yield (the company's individual yield set by private bond rating agencies), the target amounts were filled at minus 36bp for the one-year note, minus 70bp for the one-year-and-six-month note, and minus 61bp for the two-year note.
