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JPMorgan Sees Korea as Outlier in World of Slumping Bond Deals

·3 min read

(Bloomberg) -- South Korean borrowers are bucking the global trend of weak bond sales and JPMorgan Chase & Co. expects foreign-currency corporate issuance to retain its robust pace for the rest of the year.

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The US bank, the biggest arranger of offshore bond sales from the Asian nation this year, says the Korean firms’ higher ratings and less erratic debt moves are likely to continue to entice buyers, who’ve become more skittish.

“Investors who need to put their money somewhere amid volatility want to buy bonds that will sell off less, making Korean debt attractive,” SG Lee, Seoul-based head of Korea debt capital markets at JPMorgan, said in an interview. “Korean bonds have been considered as haven assets.”

Global fixed income investors have suffered double-digit losses this year as central bankers tightened policy aggressively to tame inflation. That has caused US corporate high-grade bonds to slump 14% year-to-date.

Holders of Korean bonds denominated in dollars have suffered less, with the debt sinking 7.2% so far in 2022, the least-negative performance for US currency debt from any Asian nation’s borrowers, an emerging-markets Bloomberg fixed-income index shows.

Sales of Korean offshore debt totaled $28.7 billion in the first six months of 2022, just shy of last year’s first-half record, and bucking the trend of significant declines in note sales globally.

Lee expects foreign-currency bond sales by Korean borrowers in the second half to be similar to the $16 billion of issuance in the same period of 2021, a record year for the note offerings.

Korean issuers’ share of dollar debt offerings from the region increased to 16% this year from around 9.5% in 2021 and 5.5% so far in 2020, according to data compiled by Bloomberg. Issuance across dollars, euros and yen by Asian borrowers outside Japan has declined by 42% in the same period, the data show.

South Korean issuers, especially those owned by the government, have lost less in riskier markets in part because of their higher ratings and relatively strong credit fundamentals compared to other EM peers. The South Korean sovereign has some of the highest credit ratings in Asia, with AA or its equivalent from S&P Global Ratings and Moody’s Investors Service.

Read BI: Korea Corporate Dollar Issuance Offers Spread, Safe-Haven Status

Still, reflecting the rout in credit markets this year, investors are demanding more new issue premiums recently given relatively tight Korean spreads and sizable issuance this year, according to JPMorgan’s Lee. With interest rates at home also surging, however, it may still be cheaper for some Korean borrowers to sell dollar debt and swap the funds back to won rather than to tap the local debt market, he said.

Average so-called new issue concessions in the dollar market, that is the difference between the spread over Treasuries on a company’s new bond and the spread on an outstanding one of similar maturity, have widened this year as volatility has increased.

Korea Hydro & Nuclear Power Co. paid a new issue concession of about 31 basis points when it sold a note this week, while Korea Gas Corp. paid a comparable 23 basis points earlier in the month, according to an analysis by Bloomberg.

Concessions have varied widely in the high-grade dollar bond market this year, being about 27 basis points earlier this week, while the year-to-date average is about 12 basis points, data compiled by Bloomberg show.

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