KB Securities is a traditional powerhouse in the liability capital market (DCM) sector. It has not fallen from the top position for 14 years (according to Bloomberg statistics) and is consistently listed among the lead managers of major issuances.
There are several reasons why KB Securities has been able to maintain its throne in the domestic DCM market for a long time, but there is no denying that the contribution of Executive Director Joo Tae-young has been absolutely significant. The company acknowledged this contribution by promoting Executive Director Joo from head of the IB1 group to head of the IB division at the end of last year. Starting this year, Executive Director Joo will oversee not only DCM but also the equity capital market (ECM), initial public offerings (IPO), mergers and acquisitions (M&A), real estate, and project finance.
On the 18th, I met Executive Director Joo at the KB Securities headquarters in Yeouido, Seoul, and inquired about the direction and blueprint of the DCM and IB sectors. The following is a question-and-answer session.
─Starting this year, you will take on the role of head of the IB division at KB Securities. Could you briefly introduce KB Securities’ IB division?
The IB division can be roughly divided into three groups. Group 1 is corporate finance (DCM and ECM), which I also head. Group 2 is tasked with acquisition finance (including M&A). Group 3 is responsible for real estate and project finance.
KB Securities recorded first place in the DCM sector for 14 consecutive years until last year (according to Bloomberg). In the ECM sector, it ranked second last year, but it took first place in initial public offerings (IPO). The acquisition finance market competes with banks, but KB Securities has maintained an overwhelming first place. We often carry out acquisition finance in collaboration with KB Kookmin Bank, which is not an exaggeration to say is leading the market. It also ranked first among domestic securities firms in the M&A advisory sector.
─Last year, KB Securities maintained its first place with a record of 18 trillion 568.1 billion won in underwriting performance in the domestic DCM market. What was the deal with the largest issuance size?
It was an 800 billion won LG CHEM corporate bond (originally planned for 500 billion won, but there were 3 trillion 445 billion won in purchase orders during the demand forecast). The issuance of 800 billion won worth of new capital securities by Hanwha Life was also a landmark deal. It was the largest equity-linked securities issuance based on single issuance.
The issuance of large-scale corporate bonds has been gradually increasing recently. The issuance of trillions is also on the rise. POSCO, LG CHEM, SK hynix, and LG Energy Solution are issuing corporate bonds in the trillions.
─What do you think are the reasons KB Securities has maintained its position at the top of the DCM sector for so long?
It is because we have built a strong trust relationship over a long period. Traditional powerhouses in DCM have grown alongside issuers for a long time, so they do not easily give way to competitors. Recently, there are securities firms attempting to actively enter corporate finance, but simply injecting a lot of money does not easily secure a position in the market. To excel in DCM work, it is essential to manage customers from a long-term perspective. Even if we incur losses in a single transaction, gaining trust from customers in the medium to long term is more important.
─It seems that more companies are issuing new capital securities recently.
Since last year, there has been an increasing trend. Previously, many banks and financial holding companies issued new capital securities to increase accounting capital, but recently, insurance companies have been issuing them in large quantities. As the solvency ratio (KICKS ratio) has decreased significantly and supervision over IFRS17 ratios has become stricter, there seems to be a growing demand to issue new capital securities for capital expansion. I believe there will be many issuances of new capital securities by insurance companies this year as well.
─What was the early-year effect like? (The phenomenon of money moving into the bond market as funds are executed by institutions in January.)
Last year, 67 trillion won worth of public corporate bonds matured, while the issuance amount was 82 trillion won. It was the largest issuance ever. However, it seems that the issuance this year is more than last year. The issuance size in January was a bit lower than last year, but the amount in February has increased. Many companies seem to have postponed issuances to early this year due to external factors such as the U.S. presidential election at the end of last year.
Despite the heavy influx of corporate bonds into the market, they continue to sell well, which is interpreted as a lack of suitable investment opportunities. Due to poor conditions in the stock and real estate markets, bonds have gained priority. Additionally, there are many predictions that interest rates will decrease in the medium to long term, leading institutions to consider incorporating bonds into their assets.
─Starting in 2022, KB Securities began expanding globally in the DCM (the market for issuing bonds by domestic corporations abroad). What are the current results?
At some point, competition among domestic securities firms intensified, leading to a realization of the need to enter the global market. Although the total amount of corporate bonds issued domestically and the issuance size of foreign currency-denominated bonds (KP bonds) are similar, the fees for overseas KP bonds are about 2.5 times higher. In other words, it is possible to earn more revenue in the global market while performing the same work.
Initially, when issuing global bonds, there were not many offers coming to KB Securities during the book-building process. However, now we have established a track record of underwriting overseas bond issuances for major financial institutions like the Export-Import Bank of Korea and Korea Development Bank. We are currently taking the top position among domestic securities firms in the global DCM sector.
─What are the goals for the global DCM sector this year?
Maintaining first place in the league table is the basic goal. We will also actively promote the issuance of not only KP bonds but also Kimchi bonds (foreign currency-denominated bonds issued by foreign corporations in the domestic capital market) and Arirang bonds (won-denominated bonds issued by foreign corporations in the domestic capital market). We have a history of issuing 300 billion won Arirang bonds for China Eastern Airlines, which we redeemed a couple of years ago, and we have also issued Kimchi bonds for China’s Jilin Province Railway Corporation and an Indonesian paper company. We will continue to assist quality Southeast Asian corporations in their entry into the Korean market.
─Aren't there competitors focusing on leading the public offering process? Are you also considering increasing public offering operations?
"Public offering is not a transaction that securities firms can lead by themselves. It is generally led by large private equity funds (PE) with securities firms providing support. However, KB Securities is also actively reviewing related transactions and has established an internal system for public offerings. The former head of advisory, Yang Hyun-jong, has been promoted to the head of the IB2 group, and an additional department has been created within that group as part of preparations to strengthen new opportunities such as public offerings.
─I am curious about the ECM market. Do you anticipate an increase in capital increases by corporations this year?
There may be differences depending on the industry, but financially struggling companies among electric vehicle, secondary battery, and chemical firms are likely to increase their capital.
─What are the main strategies for the IB sector this year?
Strengthening existing businesses is fundamental, and it is important to expand into areas that can grow. In particular, we plan to further activate M&A and acquisition finance. Last year, KB Securities led a cross-border M&A for the first time, advising on APP, an Indonesian paper company’s acquisition of the domestic company Monalisa. Domestically, we plan to diversify operations, including assisting large corporations in improving their corporate governance. We previously helped with the corporate governance reform of Hyosung.
Additionally, finding a new breakthrough in the real estate financing market, which is in a state of recession, is an important task this year. If the real estate market withstands the crisis last year, finding new momentum is essential this year. We must optimize capital and strengthen our capabilities to prepare for better times again. KB Securities is moving towards providing comprehensive solutions to clients rather than just executing individual deals. We will maintain this strategy and lead the IB market.