Neglected by Investors
Hanjin which is the mother company of Korean Air, failed to draw one single investor in November's demand forecast for corporate bonds in November last year, was shunned once again.
According to the financial investment industry on March 9, Hanjin carried out a full-day demand forecast for the issuance of 30 billion won (US$25.5 million) worth of corporate bonds in the middle of March but faced a shortage in demand. Among the 30 billion won (US$25.5 million), effective demand was 22 billion won (US$18.7 million), and corporate bonds worth 8 billion (US$6.8 million) won were not claimed. If investors are not secured in an additional subscription, Yuanta Securities, Mirae Asset Daewoo, KB Securities and Kiwoom Securities should take all of unsold volumes.
Having undergone a shortage in corporate bond demand forecast five times since the end of 2014, Hanjin raised interest rates as much as possible and shortened the maturity period to prevent a shortage this time. While setting the maturity period at one year, the company added 30bp (1bp = 0.01% point) to the existing corporate bond yield. On the previous day, the average interest rate of Hanjin's one-year corporate bonds calculated by private bond assessors was 5.098%. However, Hanjin is expected to issue a corporate bond at 5.3% as the issuance spread (premium) will be fixed at the upper end of an interest rate band (30bp) due to less demand compared to forecasts.
The shortage was blamed on Nice Investors Service’s negative grade outlook on Hanjin’s credit ratings. The Korean credit rating agency gave a BBB + (stable) rating to Hanjin until the end of last year but on March 3, lowered the rating to BBB + (negative) which was the same level as Korea Ratings’s rating. Nice Investors Service attributed the downgrade to the combined factors including the start of a corporate rehabilitation process, the operating loss recorded last year and the deterioration of the financial market environment for Hanjin and its affiliates. "As Korea Ratings and Nice Investors Service both gave negative ratings to Hanjin, the risk of rating fluctuations has been expanded," said an official at a securities company. He added, "There is a positive assessment that Hanjin put up a good fight by securing 22 billion won in demand even in such a tough situation."