Corporate bond issuances by builders fall to 5-year low

The Korea Times

The Korea Times

Finance

Sat, December 9, 2023 | 17:38

Markets

Corporate bond issuances by builders fall to 5-year low

Posted : 2022-12-28 16:41

Updated : 2022-12-28 19:59

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Construction sector forecast to bear negative credit outlook for 2023

By Anna J. Park

Bonds issued by domestic construction companies fell to the lowest level in five years.

According to data compiled by financial information service provider, Yonhap Infomax, Wednesday, cumulative bond issuances by builders stood at only 541 billion won ($426 million) this year.

The figure shows a drastic shrinkage compared to the past few years. Back in 2018, a total of 1.7 trillion won worth of corporate bonds were issued by the construction sector. The amount increased to 2.3 trillion won in 2019, edged down to 2.2 trillion won in 2020, but rose again to 3.2 trillion won in 2021.

This amount of capital raised this year by the construction industry through corporate bond issuances stood only at one sixth of last year. The number of construction companies that issued corporate bonds this year also nosedived to five, from last year's 18. And most of the debt was issued during the first half of this year, before the country's corporate bond market experienced a credit crunch crisis.

Notably, Hyundai Engineering & Construction (E&C), which had been steadily raising necessary capital through the bond market, ceased issuing debt this year. The company issued 300 billion won worth of corporate bonds in 2018, another 300 billion won in 2019, 710 billion won in 2020, and 300 billion won last year. The builder reportedly ceased issuing bonds for now after being deterred by unfavorable debt market conditions.

Among major local construction companies, SK ecoplant showed the most active performance by issuing 150 billion won worth of corporate bonds this year, followed by Hanwha E&C at 130 billion won, DL Construction at 93 billion won, Hanshin E&C at 85 billion won, HL D&I Halla at 83 billion won.

Despite the dismal performances, Lotte E&C recently succeeded in finding buyers for all of the 250 billion worth of corporate bonds scheduled to be issued early next year. The annual interest rate for the bonds has been set at about 5.87 percent.

However, the company's success in selling the bonds has only been possible with state-run Korea Development Bank purchasing 90 billion worth of the debt, and another 120 billion won bought by the bond market stabilization fund, which was pooled by financial companies with the regulator's capital calls.

Other major construction companies are also expected to issue corporate bonds and the country's corporate debt market showing signs of stabilizing, but local credit rating agencies maintained an unfavorable outlook on the construction sector for the next year.

Korea Investors Service (KIS) included the construction sector as one of seven industries subject to a negative industry outlook as well as being on the negative credit watch in its 2023 industry outlook report. Korea Ratings also assesses that construction companies will experience an increasing financial burden due to growing risks posed by various real estate project financing deals and slumping sales.

annajpark@koreatimes.co.kr