Foreign Loans Due
State-owned enterprises (SOEs) and private-sector companies are in the face of an ongoing domestic economic recession and an increasing call for restructuring. At the same time, they are compelled to redeem a large amount of foreign loans by procuring more foreign funds. More than 40 trillion won (US$37.6 billion) of foreign currency-denominated bonds will mature in the near future.
According to Bloomberg and local securities firms, foreign currency-denominated bonds worth US$31.3135 billion mature this year, particularly between January and July. Specifically, the amount is divided into US$2.5 billion in foreign exchange stabilization bonds issued by the government, US$3.9 billion by the Korea Export-Import Bank, US$2.9 billion by the Industrial Bank of Korea, US$2.9 billion by the Korea Development Bank (KDB), and approximately US$2 billion by each of Kookmin Bank, the Korea National Oil Corporation (KNOC), Korea Hydro & Nuclear Power, and the Korea Land & Housing Corporation. Also coming to maturity are US$600 million for GS Caltex, US$1.2 billion for KT, and US$1.4 billion for POSCO.
In the meantime, many market participants are wary of over-interpretation. Despite the Bernanke shock last year and the global economic recession, investors have been very favorable of Korean bonds for the country’s robust economic fundamentals, facilitating those companies’ financing. For example, US$1 billion worth of dollar-denominated foreign exchange stabilization bonds were successfully issued in September at a coupon rate of 4.023%, which was the lowest in the history of this type of bond issues. A series of more bonds for preemptive financing were issued smoothly until November, too.
Since the beginning of this year, the Korea Export-Import Bank has raised US$1.8 billion, including US$300 million in Kimchi Bonds, and the KNOC, KDB, Kookmin Bank, Hyundai Capital, the Korea Gas Corporation, and Korea Midland Power are also issuing bonds successfully. As of the end of last year, foreign exchange reserves (US$346.4 billion, seventh-largest in the world) and foreign currency deposits reached new highs as well.
Nevertheless, the future is not entirely rosy, as emerging markets are predicted to face greater turmoil amid the tapering by the Fed, and countries around the world will struggle to get more foreign funds. Besides, the debt redemption burden could increase if the won was depreciated to cause the won-dollar rate to soar.
“The tapering of quantitative easing has changed the type of issuing, that is, the ratio of dollar-denominated ones dropped to 62 percent while that of euro-denominated ones are going up,” said Hana Daetoo Securities research analyst Ko Eun-jin, adding, “Still, the percentage of global bond issuing by investment-grade companies in China is increasing rapidly in the Asian global bond market excluding Japan, which means the conversion issue of foreign currency-denominated bonds may entail at least some burden.”
Furthermore, business forecasts for this year signal a bumpy road ahead for those companies. Their below expected business performance could lead to a fall in credit ratings to hamper financing and investment attraction.
According to FnGuide’s data, the annual operating profit estimates of 200 major Korean companies for 2014 have been lowered by 4.7% on average since the onset of this year. The downward adjustments were 1.8% and 3.3% during the same periods of 2012 and 2013, respectively. Moreover, the majority of the 55 listed companies that have submitted their profit estimates for this year to the Financial Supervisory Service have come up with more negative figures than before.
Securities industry insiders are saying that a number of companies are unwilling to make a public announcement or are not in a position to do so in the middle of the vague economic outlook as of late. “The Q4 performances of many enterprises were way below expectations, and investors now have less trust in the profit estimates,” said Hyundai Securities researcher Bae Seong-yeong.
Things are not much different for SOEs, either. On February 2, the Korean government decided to reduce an extra four trillion won of debt by 2017 on the part of 18 major SOEs, compared to their long-term financial management plans. According to plans submitted by the enterprises in September last year, their debts were scheduled to increase by 85.4 trillion won (US$80.3 billion) by 2017. The recent decision of the government is to halve the increase in debt.