Due to Slow Season?
Korean Air conducted demand forecasting with regard of its one-year corporate bond worth 150 billion won (US$135 million) on October 17 but failed to record any effective demand. It is said that this is due to its credit rating as low as BBB and negative credit rating forecasts in the airline industry.
Things are not much different in the market of AA-rated bonds, either. United Asset Management Company (UAMCO, AA) posted a non-sale of 70 billion won (US$63 million) out of 100 billion won (US$90 million) and Hyundai Steel (AA-) had to add up to 20 basis points for its recent additional issue of 100 billion won (US$9.0 million). Likewise, Huvis (A-) conducted demand forecasting on October 6 for two- and three-year bonds worth 40 billion won (US$36 million) and recorded a non-sale of 20 billion won (US$18 million) while Pulmuone (A-) posted a non-sale of five billion won (US$4.5 million) out of 30 billion won (US$27 million) regarding three-year bonds.
The credit spread, which reflects institutional investors’ non-preference for credit debentures, has continued to rise since early last month, too. According to industry sources, the credit spread of AA minus-rated three-year bonds increased by 6.3 basis points to 41.7 basis points between September 1 and October 14 and that of A plus-rated three-year bonds rose by 7.3 basis points during the same period. The AA- and three-year credit spread regarding lenders, credit card companies and the like soared by no less than 16.8 basis points to boot.
Under the circumstances, some experts point out that an extreme slowdown in the flow of money in this market segment is affecting the debenture market. This slowdown has to do with the stand-alone rating evaluation system scheduled to become effective next year and a negative outlook on the credit ratings of lenders.