End of Korean Paper Issuance—From US Dollars to Multi-Currency Funding Secured

(Seoul=Yonhap Infomax) Hye Rim Pi – The public Korean Paper market has effectively closed for the year, entering a period of inactivity.

South Korean corporates have wrapped up their final funding rounds for the year, tapping not only the US dollar market but also euro, yen, Australian dollar, and Hong Kong dollar markets.

With Korean Paper spreads hitting record lows, the cost of issuance has risen, signaling greater challenges for companies planning to tap the market next year.

• Accelerated Diversification of Funding Currencies—Year-End Market Closure

According to investment banking (IB) industry sources on the 26th, the public Korean Paper market entered a virtual standstill following Korea Expressway Corporation’s HKD 2 billion Dim Sum bond pricing last week.

Issuance of dollar-denominated bonds is restricted by the 135-day rule, and with year-end book closing underway, multi-currency funding for the year has also concluded.

Some Korean Paper issuers may issue private placement foreign currency bonds through next month, but public offerings have largely ceased.

The public Korean Paper market remained robust through last week, with a notable uptick in multi-currency bond issuance this month.

Korea Ocean Business Corporation issued USD 300 million in Formosa bonds, while Export-Import Bank of Korea (KEXIM) and Korea Land & Housing Corporation (LH) targeted the euro bond market.

For LH, this marked its first public euro bond issuance since its integration, further diversifying its funding sources. The euro bond market is known for its conservative investor base, making debut issuances challenging, but LH’s successful entry expanded its funding channels.

Korea Expressway Corporation broadened its funding base to the public Hong Kong dollar market, having previously issued private placement HKD bonds. This issuance drew attention as the first corporate Dim Sum bond, a market previously dominated by sovereign, supranational, and agency (SSA) issuers.

Shinhan Bank tapped both the Japanese and Australian markets, issuing JPY 40 billion in Samurai bonds and AUD 500 million in Kangaroo bonds.

Swiss franc bonds also made an appearance, with Korean Air issuing CHF 100 million in bonds on the 13th (settlement date) after pricing at the end of last month, backed by a KEXIM guarantee to enhance credit quality.

The surge in multi-currency bond issuance reflects diverse corporate funding needs. Some issuers responded to local currency funding demands, while others sought to diversify funding sources by entering new markets.

As corporate funding activity intensified, the range of currencies used in public Korean Paper issuance broadened significantly this month.

• Dollar Bond Market Remains Strong, But Spread Pressure Emerges

The dollar bond market continued to perform strongly. Korea Electric Power Corporation (KEPCO) issued USD 1 billion in global bonds (144A/RegS) earlier this month.

At the time, domestic credit markets were experiencing weakened investor sentiment and wider KEPCO bond spreads, highlighting the benefits of tapping the offshore market.

Amid robust demand for Korean Paper, dollar bonds attracted ample investor interest. Spreads were comparable to domestic average rates, contrasting with the higher yields required in the local market.

Korea East-West Power also resumed Korean Paper issuance, raising USD 300 million this month following a book-building process at the end of last month.

KEPCO’s power generation subsidiaries had largely avoided the Korean Paper market in recent years, weighing interest rate competitiveness versus the won market, with only Korea Hydro & Nuclear Power (KHNP) issuing dollar bonds annually. East-West Power’s latest deal marks the first public dollar bond from a non-KHNP subsidiary in over two years.

East-West Power reportedly secured competitive rates compared to won-denominated bonds, leveraging the strong Korean Paper market.

Korean Paper dollar bonds have continued to set record-low spreads, steadily increasing their value in the second half of the year.

As spreads narrowed, the South Korean government’s foreign exchange stabilization bond (FX stabilization bond) issued last month saw the spread over US Treasuries for five-year maturities shrink to just 17 basis points—a historic low.

This is the first time the spread between Korean Paper and US Treasuries for five-year maturities has fallen into the 10bp range.

As Korean Paper valuations rise, investor concerns over tighter spreads are emerging.

An investment banker commented, “With spreads at historic lows, we’re now seeing signs of a bottoming out. While this month’s deals performed well, the market was not as buoyant as in September.”

With public bond issuance for the year now complete, market attention is turning to 2025. Uncertainty over a potential US rate cut at year-end remains a key variable.

According to CME FedWatch, the federal funds rate futures market is pricing in an 80% probability that the Federal Reserve will cut rates by 25bp in December, up from the 30% range previously, as expectations for a cut have strengthened.

Another IB source noted, “The US bond issuance market is also winding down for Thanksgiving week, and volatility is rising as the market debates the Fed’s next move.”

He added, “Fortunately, Korean Paper issuance wrapped up just before market turbulence began, but with ongoing uncertainty, we are closely monitoring sentiment for new-year funding.”

phl@yna.co.kr

(End)

© Yonhap Infomax. All rights reserved. Unauthorized reproduction, redistribution, or AI training/use prohibited.