Korea Inc. to face refunding risks with record corporate bond maturities

South Korean companies are expected to face refunding risks with record corporate bond maturities in the first half of 2025 as fundraising conditions deteriorate amid the prolonged political uncertainties following President Yoon Suk Yeol’s surprise martial law declaration.

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Corporate bonds worth 49.8 trillion won ($34.4 billion) are set to mature in January-June 2025, the largest ever for a half-year, including 26.6 trillion won in the first quarter and 23.2 trillion won in the second, according to the Korea Financial Investment Association on Friday.

Local companies are likely to seek new bond sales next year, putting pressure on the market, industry sources said.

The credit spread – the difference in yield between two debt securities of the same maturity but different credit quality – has widened since the martial law soured overall investor sentiment.

The yield spread between the highly liquid Korean government’s three-year bond and corporate notes rated AA- on Dec. 19 stood at 67.2 basis points (BPS), the widest since Feb. 22, the association said.

The differential had narrowed to around 50 bps last month on sustained inflows thanks to expectations of further interest rate cuts.

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The larger spreads are likely to make corporate fundraising for redemption significantly difficult, industry sources said.

PETROCHEMICAL WOES

Growing credit risks among domestic petrochemical manufacturers contributed to the widening spread.

Korea Ratings Corp. and Korea Investors Service Inc., an affiliate of Moody’s Corp., lowered the ratings of South Koea’s major petrochemical producer Yeochun NCC Co. (YNCC) to A0 from A-, respectively, earlier this month.

The downgrade stoked concerns over a potential early redemption of 705 billion won in bonds issued by the 50:50 joint venture between Hanwha Solutions Corp. and DL Chemical Co. YNCC must repay 70 billion in bonds before maturities if their ratings fall to BBB+ or lower.

Lotte Chemical Corp. had been embroiled in disputes with its bondholders, who argued that the company failed to meet some conditions attached to the bonds sold between September 2013 and March 2023, so it must repay them even before the debts expire.

PUBLIC FINANCE BONDS

The corporate bond market is expected to come under further pressure from record public finance bond maturities in January-June 2025.

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Public finance bonds worth 51.8 trillion won are scheduled to mature during the period, the largest ever for a half-year.

Institutional investors are expected to spend money, which is usually ample at the beginning of a year, on the refunding debts of the public finance bonds, industry sources said.

Local companies are paying attention to the government’s support. South Korea plans to operate a 40 trillion won program by the ed of 2025 to support the local bond and money markets.

“The government will continue market stabilization policies in 2025, which will significantly ease concerns by corporate bond investors,” said Kim Eun-ki, an analyst at Samsung Securities Co.

Write to Ik-Hwan Kim at [email protected]
 
Jongwoo Cheon edited this article.