The Korean government will issue foreign currency-denominated foreign exchange stabilization bonds worth US$2 billion to US$2.5 billion combined. In particular, the bonds are going to be the first 30-year ones in its history.
A foreign exchange stabilization bond is a type of foreign currency-denominated bond for promoting forex market stability. The issuing rate is used as a benchmark rate when public and private corporations procure funds from abroad.
The Ministry of Strategy & Finance announced on June 3 that it selected eight organizations, including Barclays, Bank of America, Merrill Lynch and Samsung Securities, as the lead managers for the bond issue. The bonds are expected to be halved to U.S. dollar-denominated ones with a maturity of 30 years and euro-denominated ones with a maturity of 10 years.
The Korean government has never issued a 30 year-maturity foreign exchange stabilization bond. Also, this is the first time in eight years that the Korean government issues a euro-denominated bond. The bond issue implies a highly improved international creditworthiness of the Korean economy.
The ministry is expecting that the bonds will be boon for local private-sector companies wishing to issue foreign bonds. A foreign exchange stabilization bond with favorable terms leads to a decrease in the spread of such foreign bonds. In September last year, the government had issued a US$1 billion foreign exchange stabilization bond at the lowest rate ever. At that time, the coupon rate had been 3.875 percent and the issuing rate had been 4.023 percent, 115 bps added to the 10-year U.S. Treasury Bond rate.