Seoul Yeouido Financial District Skyline (Image courtesy of Yonhap)
SEOUL, Dec. 27 (Korea Bizwire) — South Korea’s 10 largest conglomerates have nearly doubled their corporate bond issuance over the past two years to manage increasing financial burdens.
However, with rising interest rates and tighter liquidity conditions, these firms face significant challenges in refinancing their debt, raising concerns about potential ripple effects in the country’s financial markets.
As of December 22, 2024, corporate bond issuance by the top 10 conglomerates reached 39.67 trillion won ($27.36 billion), a 26.8% increase from 2023 and almost 90% higher than 2022’s figure of 20.99 trillion won, according to data from a local securities firm.
SK Group led the pack with 12.15 trillion won in bond issuances this year, accounting for 18% of the total market. The group raised funds primarily to support SK Innovation and other subsidiaries involved in structural changes and large-scale investments.
Hanwha Group, grappling with investment pressures, issued a record 5.75 trillion won in bonds, followed by Lotte (4.31 trillion won), LG (4.27 trillion won), and Samsung (2.63 trillion won).
Refinancing Pressures Loom Large
The conglomerates are staring down substantial repayment obligations in the first half of 2025. SK Group alone must refinance 6.25 trillion won in maturing bonds, while Lotte, LG, and Samsung face respective refinancing needs of 4.27 trillion won, 3.18 trillion won, and 2.75 trillion won.
Ordinarily, companies rely on issuing new bonds to refinance maturing debt, but rising interest rates and a weakening appetite for corporate bonds are complicating this strategy. The yield spread between 3-year Korean government bonds and AA-graded corporate bonds widened to 0.682 percentage points as of December 26, the highest since February 2024.
The widening spread reflects waning investor confidence, exacerbated by credit risks in sectors like petrochemicals and batteries.
Tightened Liquidity and Financial Sector Constraints
The financial sector’s ability to absorb corporate bonds is also under strain. Major financial groups face constraints in maintaining their Bank for International Settlements (BIS) capital adequacy ratios amid a volatile exchange rate environment. A rising won-dollar exchange rate lowers capital ratios, reducing financial institutions’ capacity to invest in bonds, including highly-rated corporate debt.
To address these challenges, some financial holding companies have reportedly instructed subsidiaries to halt investments temporarily to stabilize their capital ratios. As a result, even bonds from top-tier companies could see reduced demand.
Growing Financial Instability
Market instability following recent credit events, including Lotte Chemical’s early debt repayment demands, has intensified concerns. A financial industry insider cautioned, “With heightened market volatility, next year could see an intense competition for liquidity across corporations and financial institutions alike.”
As 2025 approaches, South Korea’s corporate giants find themselves navigating a precarious balancing act, caught between rising borrowing costs and the imperative to secure adequate liquidity in an increasingly uncertain financial environment.
M. H. Lee (mhlee@koreabizwire.com)
