Demand for top-rated corporate bonds shows signs of recovery

Investment sentiment towards top-rated corporate bonds seems to be improving in the local market, as AA-rated companies have recently succeeded in attracting enough capital for their bonds.

According to the investment banking industry Thursday, SK holdings attracted more than triple the necessary capital with its issuance plan of corporate bonds. During its recent book-building process, the AA+-rated company received orders worth 860 billion won ($661 million) for its corporate bonds, which is more than three times the total of 230 billion won, which the company plans to attract through issuing bonds.

It is the fourth time this year for SK holdings to issue corporate bonds, following February’s 390 billion won, June’s 350 billion won and September’s 370 billion won. The conglomerate also sold out its longterm commercial paper last month, in its first attempt to sell commercial papers.

On a similar note, HI Investment & Securities also saw orders for its corporate bonds flooded. In its book-building process, the brokerage company’s one-year maturity corporate bonds attracted orders worth 354 billion won, which is nearly triple the issuance of its planned bonds worth 130 billion won. The firm’s two-year maturity bonds and three-year maturity bonds also each attracted over three times its planned issuance bonds.

Such popularity is due to the fact that the bonds stoked their credit ratings to the highest level of AAA, as the parent company of the brokerage firm, DGB Financial Group, guaranteed redemption of the bonds.

IB industry insiders say the demand for top-rated corporate bonds shows signs of recovery, despite contractions experienced by short-term commercial paper markets. Institutional investors’ judgment call that the global interest rates’ increase speed has been somewhat slowed also contributes to recovered investment sentiments.

“While the corporate bonds market suffered from deteriorated investment sentiments during the past few months, demands for stable corporate bonds are being recovered, as seen in the recent book-building process of some top-rated companies,” an industry insider pointed out.

The AAA-rated public bonds market also shares a warmer atmosphere. A total of 1.9 trillion won worth of orders were made for 480 billion won worth of Korea Electric Power Corporation (KEPCO) bonds at the interest rates of 5.2 percent for two-year maturity bonds and 5.25 percent for three-year maturity bonds.

Yet, the lack of liquidity in the general short-term commercial paper market seems to be continuing. The three-month AA commercial paper rate stood at 5.53 percent earlier this week, which showed consecutive increases for the past 48 days.