Korean credit market degenerates into big businesses’ coffers
June 17, 2014 Leave a comment
Credit market degenerates into big businesses’ coffers
Seo Tae-wook, Chun Kyung-woon
Corporate bond market, one of the major pillars in the capital market, along with stock market, is descending into a funding channel for some large companies including Samsung Everland, LG Electronics and SK Energy.
Companies, which belong to large business groups and are entitled to strong support from parent companies, have no problems in raising long-term funds at low interest rates. In contrast, those with relatively lower credit rating find no place in the debt securities market and are driven to short-term fund market, struggling with liquidity shortage.
The outstanding issuance of AAA and AA rated bonds recorded 149.6 trillion won ($146 billion) as of late May, according to the investment bank industry Wednesday. This represents over 40 trillion won or a 36.5 percent rise in two years from 109.6 trillion won in January 2012.
Of higher-grade corporate bonds, AA bonds saw a steeper rise in outstanding balance. AAA bonds issued by banks and certain state-firms, which have a slim chance of default, witnessed around 11 trillion won or 24.3 percent rise in outstanding balance to 56.3 trillion won. However, AA corporate bonds mostly issued by large companies’ affiliates sharply soared over 30 trillion won or 46.5 percent from 64.9 trillion won to 93.3 trillion won.
Meanwhile, the outstanding balance of corporate bonds issued by low level of A and BBB companies has been on the decline. The amount fell 16.3 trillion won or 28.4 percent from late 2012 as of late May.
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