Samsung issues dollar bond with record low yield spread

Samsung Electronics has issued U.S. dollar-denominated bonds at the lowest yield spread on record for a Korean bond, helped by its enhanced global status and national creditworthiness.

This is expected to help foreign currency raising costs of Korean companies to fall further.

Financial industry sources said Tuesday that Samsung Electronics America issued 1 billion U.S. dollars worth of fixed-rate, five-year dollar notes in New York at 1.827 percent, with a yield of 80 basis points more than U.S. Treasuries with similar maturities.

The Korea Center for International Finance said, "The yield of Samsung Electronics-issued bonds is the lowest on record for a Korean bond and its spread is the second lowest."

Bonds issued by KT in 2007 had the lowest spread with a yield of 72 basis points more than U.S. Treasuries.

Samsung had initially set the spread to 100 basis points but as investors rushed to buy its dollar bonds, it lowered the spread to 90 points and further to 80. This is the first time in 15 years that Samsung floated bonds denominated in foreign currency.

Yoon In-koo, researcher at the center, said, "Moody`s raised its outlook for Korea`s sovereign credit rating to positive, and coupled with strong demand for the bonds that Samsung sold for the first time in 14 years, this pushed down the yields," adding, "Companies and banks issuing bonds will benefit from such favorable conditions going forward."

The yield spread on Korean bonds dropped to the lower range of 2 percent thanks to enhanced economic fundamentals and the rally in global stock markets.

Samsung`s bonds had been higher than government-issued FX stabilization bonds and those issued by state-owned companies with a government guarantee. The last time the government issued foreign currency stabilization bonds was in 2009, when the yield was 4.375 percent more than that of the 10-year U.S. Treasury bond.

An official at the Strategy and Finance Ministry said, "Samsung Electronics America issued the bonds with the guarantee of its Seoul headquarters, meaning that geopolitical risk on the Korean Peninsula was not reflected. This might not be deemed a Korean-issued bond."

jarrett@donga.com yunjung@donga.com