[Edaily Marketin, Reporter Kim Yeon-seo] As corporate bond yields rise sharply, the burden of raising funds for companies is increasing. Since higher issuance rates lead to higher interest expenses for companies, there is a growing trend of companies postponing public bond offerings or seeking alternative funding sources such as commercial paper (CP) and bank loans. In this week’s corporate bond market, only SeAH Steel is conducting a bookbuilding process targeting institutional investors.

According to the investment banking (IB) industry on the 12th, in this week’s corporate bond market (June 15–19), SeAH Steel (A+) is conducting a bookbuilding process targeting institutional investors with the goal of issuing up to 160 billion won in corporate bonds.

SeAH Steel will conduct a bookbuilding process for corporate bonds totaling 80 billion won on the 17th. The tranches (maturities) consist of 40 billion won in 2-year bonds and 40 billion won in 3-year bonds. The company has left open the possibility of increasing the issuance amount to a maximum of 160 billion won depending on the results of the bookbuilding.

NH Investment & Securities, KB Securities, and Korea Investment & Securities are serving as the lead underwriters for this corporate bond issuance. SeAH Steel plans to issue the bonds on the 25th following the bookbuilding process on the 17th. The target yield spread for the public offering has been set at -30 to +30 basis points (bps; 1 bp = 0.01 percentage point) relative to the assessment rates of individual private bond rating agencies.

Domestic credit rating agencies view SeAH Steel’s creditworthiness as stable. NICE Credit Rating and Korea Credit Rating both assign SeAH Steel a credit rating of ‘A+ (Stable)’. SeAH Steel is regarded as having strong business competitiveness, as it holds a market share of around 20% in the domestic steel pipe industry.

Its financial stability is also analyzed as being at a sound level. As of the end of March this year, SeAH Steel’s debt-to-equity ratio stood at 64.7% and its net debt-to-total assets ratio at 15.3% on a standalone basis. The debt-to-equity ratio is an indicator showing the scale of debt relative to equity, while the net debt-to-total assets ratio refers to the proportion of net debt in total assets.

Song Dong-hwan, a senior researcher at NICE Credit Rating, assessed, “Considering its financial buffers, the company is expected to maintain an excellent level of financial stability going forward.”

However, the recent rise in market interest rates is weighing on the corporate bond issuance market as a whole. According to BondWeb, the yield on 3-year corporate bonds rated ‘AA-’ rose from 3.43% on January 2, the start of the year, to 4.54% on the 8th. As of the 12th, it stood at 4.51%, remaining in the 4.5% range.

As corporate bond issuance rates rise, companies’ funding strategies are also shifting. While issuing public corporate bonds typically allows companies to secure long-term funds for two to five years or more, issuers must bear fixed interest costs during periods of high interest rates. Consequently, some companies are shifting their funding channels to relatively short-term instruments such as commercial paper (CP), electronic short-term bonds, and bank loans. This is interpreted as a move to reduce immediate interest rate burdens or to prepare for long-term funding once interest rates decline.

Market analysts suggest that as expectations for U.S. interest rate cuts recede, upward pressure on domestic market rates continues. This is largely due to the spread of forecasts that the Federal Reserve (Fed) may delay its rate cuts following recent robust U.S. employment data. If U.S. rate cuts are delayed, global bond yields are likely to remain at elevated levels, which in turn puts pressure on domestic corporate bond yields.

An official in the financial investment industry stated, “As the Fed’s rate cut is delayed, the risk of prolonged high interest rates is becoming increasingly likely,” adding, “With U.S. employment indicators also showing a positive trend, upward pressure on market interest rates is continuing, and as a result, corporate bond issuers are carefully adjusting their timing for fundraising.”