Fed’s big rate cut spurs Korean firms to issue foreign bonds
Hyun-Ju Jang
Sep 25, 2024 (Gmt+09:00)
Bundles of $100 bills at South Korea's Hana Bank headquarters in Seoul (File photo by Yonhap) South Korean companies rushed to issue foreign currency bonds after the US Federal Reserve lowered interest rates for the first time in more than four years last week with a larger-than-usual cut.
Industrial Bank of Korea is set to sell $800 million in foreign currency bonds, the lender’s largest-ever issuance of such debt -- $300 million in three-year notes and $500 million in five-year bonds, according to investment banking industry sources on Tuesday in Seoul.
The bank enjoyed $4.6 billion worth of orders from global investors during the bookbuilding session, the sources said.
Hyundai Capital America secured $2.75 billion through a foreign currency bond sale. The US unit of Hyundai Capital Services Inc., the consumer financial service provider of the world’s third-largest automaker Hyundai Motor Group, initially aimed to raise $2.5 billion, but strong demand in the bookbuilding session increased the value of the bond issuance.
“The Fed’s rate-cut cycle has begun in earnest, improving global financial market conditions. That is expected to significantly reduce the costs for dollar-denominated bonds,” said Kim Junyeong, an economist at DS Investment & Securities Co. in Seoul.
The US central bank on Sept. 18 cut its benchmark lending rate by 50 basis points to the 4.75%-5% range.
MORE TO COME
Other South Korean companies are lined up to raise money through foreign currency bond sales.
KT Corp., the country’s leading telecommunication carrier, plans to issue foreign currency bonds for the first time in two years, while the Korea National Oil Corp. (KNOC) is scheduled to hold a bookbuilding session for such notes this week.
The Korea Housing Finance Corp. decided to sell 650 million euro ($727.3 million) in covered bonds, debt securities issued by a bank or mortgage institution and collateralized against a pool of assets that, in case of failure of the issuer, cover claims at any time.
The Korea Water Resources Corp. is seeking to sell Formosa bonds, debts issued in Taiwan but denominated in a currency other than the New Taiwan dollar.
US ELECTION, MATURITIES
South Korean companies are expected to rush to issue foreign currency bonds next month, given growing uncertainties over the US presidential election in November, sources said.
“More companies decided to put forward bond sales as the US election is too close to call,” said an investment banking department official at a brokerage in Seoul.
Maturing foreign currency bonds also prompted companies to seek such debts, sources said. Maturing foreign currency bonds from September to December totaled $12.3 billion, according to the Korea Center for International Finance.
The growing plans for foreign currency notes among local companies heated competition for bond sale management deals among foreign securities firms.
Morgan Stanley and Deutsche Bank recently hired veterans of the South Korean debt capital market to expand their presence in the foreign currency bond sector, according to sources in Seoul.