SEOUL, Nov. 28 (Korea Bizwire) — South Korea plans to reduce the issuance of bonds by state-run companies, the finance ministry said Monday, in line with the country’s efforts to stabilize the bond market hit by uncertainties.
The plan was announced during an emergency meeting of economy-related ministers in Seoul earlier in the day, presided over by Finance Minister Choo Kyung-ho, according to the Ministry of Economy and Finance.
“Under cooperation with the banking sector, we will seek to have state-run organizations, including the Korea Electric Power Corp. and the Korea Gas Corp., reduce their bond issuance, or issue them over different periods, and have them seek bank loans,” the finance ministry said in a release.
The move came as South Korea’s capital market, especially the corporate bond market, has been facing jitters in the wake of a recent Legoland-linked debt default and growing worries over a credit crunch.
South Korea also decided to inject an additional 5 trillion won (US$3.73 billion) into a bond market stabilization fund through a capital call.
To financial institutions that would respond to the call for capital commitment to the fund, the BOK plans to provide up to 2.5 trillion won worth of liquidity by buying repurchase agreements.
The bond market stabilization fund has been activated mostly to purchase corporate bonds and commercial papers in a bid to increase demand and stabilize yields.
The BOK said that despite its planned liquidity injection would not run counter to its monetary tightening to bring inflation down as the central bank plans to absorb the funds through open market operations going forward.
The ministry said South Korea also plans to sell just 3.8 trillion won in government bonds next month, in line with efforts to ease the market’s burden. In November, the government issued 9.2 trillion won in state bonds.
Last month, South Korea’s financial authorities announced plans to expand liquidity supply programs to at least 50 trillion won as part of efforts to calm corporate bond market jitters.
“Until the end of this year, there are still key events remaining, including the announcement of inflation data and the rate setting of major countries,” Choo said during the meeting.
The minister added the recent strike of truckers is expected to further weigh on the South Korean economy, which may potentially lead to more volatility in the local financial market.