Korea-issued FX bonds attracting high demand overseas

Foreign investors are rushing to buy foreign-currency bonds issued by Korean companies. With demand for Korean bonds increasing, bond prices are continuously growing while their yields have been dropping.

Those in charge of finance at Korea National Oil Corp. traveled to New York, London, Hong Kong and other major world cities in March to talk to investors and identify market trends before issuing overseas bonds.

A source from the company’s finance team said, “The number of investors who approached us to have meetings doubled from last year,” adding, “We are receiving more-than-expected interest.”

The oil company issued 1 billion U.S. dollars worth of five-year foreign currency bonds at an annual interest of 3.2 percent, or 2.1 percentage points higher than five-year U.S. Treasuries. Thus Korean companies are securing foreign funding at low cost.

The spread to the U.S. Treasury of Korean bonds was in the mid-3 percent level late last year and early this year, but has declined to the low-2 percent range. A decline of one percentage point in interest on 10 billion U.S. dollars means a savings of 100 million dollars in borrowing costs.

Early this month, Samsung Electronics issued bonds with an annual interest of 1.827 percent, a record low among Korean bonds including government bonds. This means the profile of Korean companies has seen an upgrade in the international market.

Yang Seung-won, in charge of foreign fund procurement at the Korea Development Bank, said, “Though bond prices have increased, we`ve received a number of buy requests,” adding, “We could`ve received more buy orders but declined because investors would be disappointed if they are allocated with fewer bonds than they requested.” For bonds worth 750 million dollars, the state-run bank received 4 billion dollars worth of orders.

With demand for Korean bonds increasing, the size of bond issuance by Korean companies and banks is sharply growing. Bloomberg said Korea issued 11.7 billion dollars worth of foreign-currency bonds in the first quarter this year, equal to 40 percent of the combined value of bonds issued last year.

jarrett@donga.com