[E-Daily Marketin Reporter KIM YEON-SEO ] Amid a continued lull in the corporate bond issuance market in July, a BBB-rated public offering is set to debut for the first time in a while. While corporate bond issuance by general companies has declined significantly due to recent interest rate hikes and a slump in investor sentiment toward non-investment-grade bonds, HANJIN Logistics Corporation is conducting a bookbuilding process targeting institutional investors for the issuance of 40 billion won in corporate bonds.

According to the investment banking (IB) industry on the 12th, KIWOOM Securities (AA0) and HANJIN Logistics Corporation (BBB+) will conduct bookbuilding among institutional investors in the corporate bond market this week (July 13–17). Since the start of July, public bond issuance by general corporations has contracted significantly, with the exception of a few large securities firms. In previous years, corporate bond issuance typically peaked from late July through mid-August—a period coinciding with the vacation season and the deadline for submitting semi-annual review reports—but this year, the issuance market quickly entered its off-season as early as the beginning of July.

KIWOOM Securities is planning to issue corporate bonds totaling 200 billion won. The tranches (maturities) consist of 70 billion won in 2-year bonds and 130 billion won in 3-year bonds. Depending on the results of the bookbuilding process, the issuance amount could be increased to a maximum of 400 billion won. KB Securities and Korea Investment & Securities are serving as lead underwriters. Bookbuilding will take place on the 13th, and the issuance date is set for the 21st. The target yield band has been set at -30 to +30 basis points (bps; 1 bp = 0.01 percentage point) relative to the ratings provided by individual private bond rating agencies.

HANJIN Logistics Corporation stands out among the issuers. HANJIN Logistics Corporation is preparing to issue corporate bonds totaling 40 billion won, including 20 billion won in 1-year bonds and 20 billion won in 1.5-year bonds. Depending on the results of the bookbuilding, the company has left open the possibility of increasing the issuance amount to a maximum of 80 billion won. The lead underwriters are five firms: NH INVESTMENT & SECURITIES, KB Securities, Korea Investment & Securities, KIWOOM Securities, and SANGSANGININVESTMENT&SECURITIES. The bookbuilding is scheduled for the 14th, and the issuance date is set for the 23rd.

The target yield spread has been set at -50 to +50 basis points relative to the individual market average for the 1-year notes, and -40 to +40 basis points for the 1.5-year notes. As a BBB-rated issuer, this is interpreted as a wider yield spread compared to high-quality bonds. However, since HANJIN Logistics Corporation currently holds a BBB+ rating with a “positive” outlook, the market generally views it as a relatively high-quality credit even among BBB-rated issuers. Some investors even view the company as an issuer that is effectively close to A-grade.

Recently, both issuers and investors in the corporate bond market have adopted a wait-and-see attitude. Rising corporate bond yields have increased the funding cost burden for issuers, while investors have become more wary of interest rate volatility and credit events. In particular, investment demand for non-investment-grade bonds has contracted further amid the ongoing JR GLOBAL REIT crisis and issues related to the Joongang Group.

While securities firms, which enjoyed favorable business conditions in the first half of the year, are proceeding with corporate bond issuances, issuance by general corporations has declined significantly. This is because the incentive to raise funds through corporate bond issuance has diminished, and market demand for non-investment-grade bonds remains limited. HANJIN Logistics Corporation’s upcoming book-building is expected to serve as a litmus test for gauging the current sentiment in the recently sluggish BBB-rated public bond market.

The market is closely watching whether issuance will recover in the second half of the year. While September and October are typically considered the peak season for corporate bond issuance ahead of year-end, observers suggest that the issuance market is unlikely to see a full-fledged recovery even during this period this year. This is because, although a significant volume of corporate bonds is set to mature in September and October, the market is simultaneously grappling with the burden of interest rates and shrinking investor demand.

Kim Eun-ki, head of the Global Bonds Team at SamsungSecurities, stated in a report, “There is significant market interest in whether issuance will recover in September and October, which are traditionally the peak months for corporate bond issuance in the second half of the year,” adding, “Corporate bonds totaling 13.4 trillion won will mature in September and October this year, and issuance will decline sharply from November onward due to year-end factors.”

He went on to explain, “Although this is the last window for corporate bond issuance to increase in the second half of this year, the market environment makes it difficult for issuance to gain full momentum in September and October,” adding, “With interest rates on the rise, demand for corporate bonds is weak, raising significant concerns that issuance spreads will widen.” However, he added, “The issuance market may recover somewhat early next year due to demand for corporate bonds driven by bond fund inflows at the start of the year.”