Korean brokerages flock to debt market with securities bonds on bull run

South Korea’s leading brokerage houses are flocking to the debt market as bonds issued by securities companies are in growing demand, industry data showed on Tuesday.

With concerns over real estate project financing loan delinquencies subsiding and expectations for improved business performance at brokerage houses on the rise, big investors are tapping into the corporate bond market.

According to investment banking industry officials, Hana Securities Co. plans to conduct bookbuilding on Oct. 28 to gauge demand for its bond issue worth up to 300 billion won ($217 million) for two-year and three-year notes.

The lead managers are KB Securities Co., NH Investment & Securities Co., Korea Investment & Securities Co., and Shinhan Securities Co.

HIGH DEMAND FOR SECURITIES BONDS

With rising demand for securities bonds, major securities firms are rushing into the corporate bond market.

Large securities firms such as Korea Investment, NH Investment and Samsung Securities Co. have each seen over 2 trillion won in bids for their planned bond sales since September.

Korea Investment & Securities saw its 200 billion won bond issue 12 times oversubscribed, attracting 2.53 trillion won in bids from investors.

NH Investment and Samsung Securities attracted 2.18 trillion won and 2.29 trillion won in bids, respectively, for their bond sales.

REPLACE SHORT-TERM DEBT WITH LONGER-DATED BONDS

Industry officials said brokerage firms are ramping up sales of longer-term bonds to repay their shorter-dated debt.

Taking advantage of ample liquidity and improved investor sentiment, brokerages such as Korea Investment, NH Investment and Samsung plan to replace short-term financial instruments like commercial papers (CPs) with long-term debt.

Analysts said securities firms' record-breaking earnings offer bond buyers a safety net to buy into their debt.

Their earnings growth is expected to continue into the rest of the year.

According to financial market information provider FnGuide Inc., the combined operating profit of six major Korean brokerage houses – Mirae Asset Securities Co., Korea Investment Holdings Co., NH Investment, Samsung Securities, Kiwoom Securities Co. and Meritz Financial Group Inc. – is estimated at 2.12 trillion won in the third quarter, up 18.9% from a year earlier.

The risks associated with real estate project financing, which previously weighed on securities firms, are also diminishing.

Major firms have built up enough loan-loss provisioning to endure any project financing delinquencies, a move that helped them regain investor interest, according to industry officials.

Write to Hyun-Ju Jang at blacksea@hankyung.com

In-Soo Nam edited this article.