Korea Development Bank (KDB) will begin to purchase 1.90 trillion won worth of corporate bonds next week as part of the government’s efforts to stabilize the financial market. The state-run lender will purchase corporate bonds of grade A or higher worth up to 200 billion won per company.
The bank will wrap up a demand survey for the bonds this week. The bonds are issued for refunding, that is, to repay maturing bonds. This time, the bank will purchase corporate bonds of grade A or higher and those issued by companies whose credit ratings have been lowered due to the COVID-19 crisis but are still in the investment grades of BBB- or above.
The bank is also planning to implement a quick corporate bond acquisition program to purchase 2.2 trillion won worth of bonds with non-investment grades of BBB or lower.
However, it will take some time to run the quick bond acquisition program as it has to go through the process of selling the acquired bonds to creditor banks and the Korea Credit Guarantee Fund (KCGF).
Of the 2.2 trillion won worth of bonds to be purchased by KDB, the Industrial Bank of Korea will take over 20 percent and repay maturing bonds. KDB will sell the remaining 80 percent to creditor banks and the KCGF. Then, the fund will issue primary collateralized bond obligations (P-CBOs) based on the acquired corporate bonds.
In the meantime, KDB succeeded in issuing a three-year variable interest rate bond worth US$500 million. After the international financial market was shaken under the influence of the pandemic, Korea National Oil Corp. issued foreign currency bonds, but they were issued in Swiss francs. It is KDB that issued bonds in U.S. dollars for the first time. In February, global bonds of US$1.5 billion were issued by the bank. The Korea Export-Import Bank issued US$1.20 billion worth of commercial papers (CPs) in March, but they were not bonds.