Non-gilts Resorting to Private Bond Market
The corporate bond market is polarizing rapidly with gilts, which are targeted by the government’s bond market stabilization fund, filling the public offering market and non-gilts resorting to the private bond market. Non-leading companies’ bond issuance is likely to become increasingly difficult with interest rates remaining low and a recession looming large.
At present, a number of companies with a credit rating of AA or higher are standing by in the public bond market. Specifically, 11 companies, including SK Energy, GS, Lotte Holdings, LG Hausys and LG CNS, are preparing demand forecasts.
The bond market stabilization fund targets AA-rated or higher debentures with maturity of three years or less. As such, the companies are preparing financing in the public bond market after postponed demand forecasts. Most of their bonds have a maturity of three years. On April 6, Lotte Food conducted its demand forecast with a target value of 70 billion won and the final result was twice the value.
Nonetheless, bond market experts point out that it is still too early to mention the market stabilization effect of the government’s bond in that a small number of institutions participated in the demand forecast and the company’s rate was higher than the average of private valuation firms. “In addition, even after the actual execution of the fund, bonds will be distinguished between those more promising and the rest,” one of them mentioned.
In the meantime, companies with a credit rating of BBB or less are hardly found in the public bond market these days. They are continuing with financing in the private bond, CP and ABS markets. For example, Asiana Airlines (BBB-), Halla (BBB0), Hanwha E&C (A-) and E-Land Retail (BBB+) recently issued private bonds.