[Edaily Marketin Reporter LEE GEON-EOM ] E-Land World is proceeding with a bookbuilding process amid a freeze in investor sentiment toward BBB-rated corporate bonds. Having fully subscribed its two bookbuilding rounds in the first half of the year, the company appears optimistic about strong demand this time as well, but negative outlooks prevail in the market.

With confidence in the credit market as a whole shaken following the successive defaults of JR Global REIT and the Joongang Group—and given that the company’s own fundamentals are seen as likely to remain stagnant without any significant improvement—the outlook suggests it is more likely to follow in the footsteps of Donghwa Enterprises and Hanjin, which recently recorded unsold bonds, rather than serving as a catalyst to revive investor sentiment for BBB-rated bonds.

According to the financial investment industry on the 12th, E-Land World plans to conduct a bookbuilding process for 20 billion won worth of corporate bonds on the 19th. Depending on the results of the bookbuilding, E-Land World is considering increasing the offering size to a maximum of 40 billion won. E-Land World’s unsecured corporate bonds carry a credit rating of “BBB (Stable).”

First-Half ‘Sold-Out’ Streak Fades… Investor Sentiment Frozen by Wave of Defaults

Previously, E-Land World secured orders exceeding the target amount in both demand forecasts conducted during

the first half of the year

. It received orders of 73 billion won and 43 billion won, respectively, continuing its streak of sell-outs driven by the appeal of high interest rates and retail demand. This marked a “two out of two” success, overcoming its history of unsold bonds.

The problem is that investor sentiment has shifted 180 degrees between the first half of the year and now. The credit market as a whole has been shaken as JR Global REIT, previously rated A-, and the BBB-rated JoongAng Group (JTBC) have recently faced consecutive defaults and financial crises. Unlike the first half of the year, when the default rate for speculative-grade bonds was “0,” defaults have now been concentrated solely among A- and BBB-rated issuers, causing market distrust in credit ratings themselves to reach a peak.

Yields on BBB-rated corporate bonds also remain at high levels. As of the 11th, the yield on BBB+ bonds stood at 7.80%, about 150 basis points higher than the 6.30% recorded during the same period last year. Yields on BBB- and BBB-rated bonds have also risen sharply over the same period, from 7.34% and 8.70% to 8.92% and 10.23%, respectively. Analysts note that market caution remains high, making it difficult to attract investment demand based solely on the appeal of high yields.

Market participants also agree that, in the wake of the JR Global REIT and Joongang Group incidents, it is virtually impossible for BBB-rated corporate bonds to sell well at this point. This is because the successive defaults by these two companies—which were previously classified as high-quality issuers—have deepened the market’s distrust of credit ratings themselves, and even retail investors, who have traditionally supported demand for corporate bonds, are now turning away. In fact, even Hanjin and Donghwa Enterprises, which recently attempted to issue corporate bonds, have recorded a string of unsold issues.

An official in the financial investment industry stated, “BBB-rated bonds typically rely on support from retail investors, but it’s difficult to guarantee that demand at this point,” adding, “Given the major credit issues involving the Joongang Group and JR Global, it’s hard to view the current situation in the same light as the first half of the year.”

The official continued, “Previously, there were opinions that E-Land could become risky before Joongang among BBB-rated issuers, but since the opposite has now occurred, market confidence in E-Land is inevitably lower,” adding, “Even if E-Land has established a network, it needs to be supported by end-user demand—that is, retail demand—and it seems difficult to guarantee that.”

Some analysts suggest that E-Land World’s strong performance in the first half was driven more by the timing of the issuance than by expectations for the stock itself. They explain that the market environment at the beginning of the year—characterized by abundant liquidity and the absence of prominent credit issues—supported E-Land World’s success.

Another financial investment industry official stated, “E-Land World’s success in the first half was a matter of timing, not the bond itself,” adding, “Given that major events have occurred one after another since the issuance, it is highly likely that things won’t be as easy this time.”

He continued, “In E-Land’s case, given that the group itself is not in a favorable position, it is questionable whether there will be demand,” and predicted, “Rather than serving as a catalyst for BBB-rated corporate bonds, it may struggle to sell well, just like other BBB-rated issues.”

“Fundraising While Accepting Unsold Bonds” vs. “Holding Its Own Thanks to High-Yield Appeal”

Given this situation, some observers suggest that E-Land World’s current bookbuilding process is an issuance that

accepts

the risk of

unsold bonds

. They explain that the emphasis is on securing funds rather than achieving a full subscription.

A credit analyst at a securities firm explained, “From E-Land’s perspective, they are in a position where they must raise funds at all costs, so they cannot afford to be picky even if their image is somewhat tarnished by unsold shares.” He continued, “Since the lead underwriter has aggressively set aside a large volume with the resolve to absorb any unsold shares on its own account, we should view this as a structure where the lead underwriter will underwrite the remainder even if retail investors cannot fully absorb the offering.”

However, there is also a contrasting view that a complete oversubscription failure can likely be avoided. This is because concerns over interest rate hikes have subsided somewhat recently, which could bring the appeal of high yields back into focus.

A bond portfolio manager at an asset management firm said, “Even if the offering doesn’t achieve a complete sell-out, I don’t think it will fall short of the target,” adding, “Since the sentiment surrounding interest rate hikes has cooled significantly compared to before, I expect it to perform at least on par with previous offerings.”

He continued, “We cannot simply view E-Land’s credit situation as poor; I believe the offering will be somewhat successful, even if not to the same extent as before,” adding, “With the likelihood of a September rate hike having decreased, this could serve as an opportunity to revive interest in BBB-rated corporate bonds, which offer high yields while remaining stable.”

Meanwhile, E-Land World’s debt-to-equity ratio as of the end of last year stood at 181%, up 10.5 percentage points (p) from the previous year. Its debt dependency ratio also rose by 2 percentage points to 47.2% over the same period. This figure exceeds the appropriate debt dependency level of 30%.