Investors Scouring the World for Yield Turn to South Korea
(Bloomberg) — South Korea is looking increasingly alluring to some global debt investors who see it as an oasis of decent yields amid more volatile markets elsewhere.
That appeal has helped non-government-owned Korean companies such as SK Hynix Inc. boost overall overseas bond issuance to an eight-year high. The surge is all the more striking given the risks with South Korea: a nasty trade spat with Japan, economic growth that’s forecast to be the slowest in a decade, and uncertainty with the communist regime in the north of the peninsula.
SK Hynix, Asia’s second-largest maker of memory chips, priced $500 million of five-year notes on Tuesday, Bloomberg-compiled data show. It was the first offshore debt sale by the firm since 2012. The company came to market even after Moody’s Investors Service cut its Baa2 rating outlook to negative in July, in part because of controls on Japanese semiconductor material imports to South Korea.
With the right pricing, some Korean issuers are benefiting from strong demand for high-grade debt right now. Average yields on Asian investment-grade dollar bonds fell to the lowest since late 2016 last week with slowing growth worldwide pushing investors to safer fixed-income assets.
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SK Hynix marketed the bond even after Hyundai Capital Services Inc. pulled back its planned deal last week, citing rising volatility in markets due to trade friction and weaker-than-expected global economic indicators. After escaping from junk-grade ratings in 2017, the Icheon-based chipmaker said it hoped to diversify funding by entering the offshore market.
Non-government-owned Korean companies such as SK Hynix have boosted overall issuance by 27% so far this year to $5.6 billion, according to data compiled by Bloomberg. Raising money in the overseas markets gives them an alternative to selling won-denominated debt.
As most of the offshore bonds from Korea are typically sold by state-owned enterprises or banks, there’s a scarcity value in offerings such as SK Hynix’s. The biggest deal to price this year was LG Chem Ltd’s $1 billion and 500 million euro ($552 million) of notes in April.
The U.S.-China trade war and Korea’s feud with Japan are adding to uncertainties for the Korean economy, clouding the rating outlook for Korean companies overall. South Korea said on Wednesday it’s filing a complaint with the World Trade Organization against Japan’s export curbs on key materials used by chipmakers.
But with the U.S. yield curve inversion marking a “watershed event” for global capital markets, lower volatility markets such as Korea are probably a good option right now, according to Todd Schubert at Bank of Singapore.
(Updates with South Korea’s WTO complaint in eighth paragraph.)
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