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62491
Tue, 05/26/2009 - 10:22
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Shortlink :
https://oananews.org//node/62491
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Yonhap Feature) S. Korean firms scurry to tap bond market for cash
(By Park Bo-ram
SEOUL, May 26 (Yonhap) -- South Korea's large companies are hurrying to tap the
bond market for much-needed funds as a prolonged economic downturn has made a big
dent in their cash inflows, market watchers say.
In the January-April period of this year, major non-financial companies in the
country issued bonds worth 23.4 trillion won (US$18.7 billion), a sharp rise from
the 9.2 trillion won floated during the same period a year earlier.
"Corporate demand for cash has surged as companies scramble to secure liquidity
amid the economic downturn, forcing them to rush to the bond market," said Seo
Chul-woo, a bond market analyst at Daewoo Securities Co.
The main reason for the corporate debt rush is the protracted slump of the
economy, which has battered their sales and thus reduced corporate cash receipts
sharply.
The South Korean economy, Asia's fourth-largest, grew a mere 0.1 percent
on-quarter in the January-March period after plunging 5.1 percent three months
earlier. For the whole of this year, the economy is expected to shrink in the
2-percent range.
Also cited is the reluctance of local banks to lend money to corporate borrowers
amid rising default risks. Analysts say lenders are unwilling to make loans as
they are struggling to clean up their own balance sheets amid a rise in
distressed loans.
According to financial authorities, local financial institutions had 31 trillion
won (US$24.9 billion) in nonperforming loans as the end of March, up 10.4
trillion won from six months earlier.
Market watchers say that also responsible is the weak stock market which has made
it difficult for companies to secure money through share sales, another key
funding method for corporate borrowers.
The debt boom has brought even unlikely players and first-time issuers into the
market as the economic downturn has rippled through every industry.
Stung by plummeting orders, the world's top three shipbuilders -- Hyundai Heavy
Industries Co., Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine
Engineering Co. -- were forced to resort to the debt market.
Samsung Heavy Industries, the No. 2 shipbuilder, sold 700 billion won worth of
three-year bonds in late March, the first debt sale since early 2002, to boost
working capital.
Industry leader Hyundai Heavy Industries and Daewoo Shipbuilding & Marine
Engineering Co. raised 300 billion won and 500 billion won, respectively, through
debt sales in April.
"The shipbuilding industry's big-scale debt sales came as they try to deal with
increased cash needs to pay material and other costs amid falling earnings," said
Park Sang-keun, a credit analysts at Hyundai Securities Co.
Desperate for cash, some companies are even offering sweeteners to make their
debt sales easier and more attractive.
In the first four months of this year, the issuance of convertible bonds (CBs)
and bonds with warrant (BWs), which give holders the right to turn them into
shares in a given period, jumped more than seven times to reach 736.8 billion.
In March, Kia Motors Corp., the nation's second-largest carmaker, offered to sell
400 billion won in BWs, which was 20 times oversubscribed.
"The surge in BW and CB sales shows issuers are using the last resort to
negotiate a sharp credit squeeze," said Park of Hyundai Securities. "Issuers are
under a double burden of indebtedness and potential loosening of their grip over
management rights."
Despite the jump in bond sales by big companies, small firms still find it hard
to raise money through debt sales as investors shun corporate debtors with high
credit risks, experts say.
"Smaller firms are entirely excluded from the bond market boom as investors still
remain wary of their defaults. Companies with BBB rating or below also face
difficulties due to their higher risks," said Seo of Daewoo Securities.
Market watchers predict the current corporate rush to the bond market will lose
ground in coming months as cash-strapped companies have already secured money
enough to help them go through the economic downturn.
"The bond sale boom is likely to lose steam down the road as large companies have
raised sufficient funds and few firms are expected to need money for new
investments due to the economic slump," Seo said.
pbr@yna.co.kr
(END)
SEOUL, May 26 (Yonhap) -- South Korea's large companies are hurrying to tap the
bond market for much-needed funds as a prolonged economic downturn has made a big
dent in their cash inflows, market watchers say.
In the January-April period of this year, major non-financial companies in the
country issued bonds worth 23.4 trillion won (US$18.7 billion), a sharp rise from
the 9.2 trillion won floated during the same period a year earlier.
"Corporate demand for cash has surged as companies scramble to secure liquidity
amid the economic downturn, forcing them to rush to the bond market," said Seo
Chul-woo, a bond market analyst at Daewoo Securities Co.
The main reason for the corporate debt rush is the protracted slump of the
economy, which has battered their sales and thus reduced corporate cash receipts
sharply.
The South Korean economy, Asia's fourth-largest, grew a mere 0.1 percent
on-quarter in the January-March period after plunging 5.1 percent three months
earlier. For the whole of this year, the economy is expected to shrink in the
2-percent range.
Also cited is the reluctance of local banks to lend money to corporate borrowers
amid rising default risks. Analysts say lenders are unwilling to make loans as
they are struggling to clean up their own balance sheets amid a rise in
distressed loans.
According to financial authorities, local financial institutions had 31 trillion
won (US$24.9 billion) in nonperforming loans as the end of March, up 10.4
trillion won from six months earlier.
Market watchers say that also responsible is the weak stock market which has made
it difficult for companies to secure money through share sales, another key
funding method for corporate borrowers.
The debt boom has brought even unlikely players and first-time issuers into the
market as the economic downturn has rippled through every industry.
Stung by plummeting orders, the world's top three shipbuilders -- Hyundai Heavy
Industries Co., Samsung Heavy Industries Co. and Daewoo Shipbuilding & Marine
Engineering Co. -- were forced to resort to the debt market.
Samsung Heavy Industries, the No. 2 shipbuilder, sold 700 billion won worth of
three-year bonds in late March, the first debt sale since early 2002, to boost
working capital.
Industry leader Hyundai Heavy Industries and Daewoo Shipbuilding & Marine
Engineering Co. raised 300 billion won and 500 billion won, respectively, through
debt sales in April.
"The shipbuilding industry's big-scale debt sales came as they try to deal with
increased cash needs to pay material and other costs amid falling earnings," said
Park Sang-keun, a credit analysts at Hyundai Securities Co.
Desperate for cash, some companies are even offering sweeteners to make their
debt sales easier and more attractive.
In the first four months of this year, the issuance of convertible bonds (CBs)
and bonds with warrant (BWs), which give holders the right to turn them into
shares in a given period, jumped more than seven times to reach 736.8 billion.
In March, Kia Motors Corp., the nation's second-largest carmaker, offered to sell
400 billion won in BWs, which was 20 times oversubscribed.
"The surge in BW and CB sales shows issuers are using the last resort to
negotiate a sharp credit squeeze," said Park of Hyundai Securities. "Issuers are
under a double burden of indebtedness and potential loosening of their grip over
management rights."
Despite the jump in bond sales by big companies, small firms still find it hard
to raise money through debt sales as investors shun corporate debtors with high
credit risks, experts say.
"Smaller firms are entirely excluded from the bond market boom as investors still
remain wary of their defaults. Companies with BBB rating or below also face
difficulties due to their higher risks," said Seo of Daewoo Securities.
Market watchers predict the current corporate rush to the bond market will lose
ground in coming months as cash-strapped companies have already secured money
enough to help them go through the economic downturn.
"The bond sale boom is likely to lose steam down the road as large companies have
raised sufficient funds and few firms are expected to need money for new
investments due to the economic slump," Seo said.
pbr@yna.co.kr
(END)
