The corporate bond issuance market values both size and revenue. Thanks to a focus on revenue, it recorded first place in commissions in the corporate bond market last year.
On the 21st of last month, Kim Seong-yeol, head of the IB2 division at Korea Investment & Securities, noted that "Korea Investment & Securities has maintained the top position in the specialized credit finance company bond market for 6 to 7 years."
Kim has been working at Korea Investment & Securities since 1999, when he joined Dongwon Securities, completing 27 years. He started with initial public offerings (IPOs) and has since covered various areas including equity capital markets (ECM) and debt capital markets (DCM). He was promoted to deputy minister last year and currently oversees capital increases and corporate bond issuances. The following is a Q&A.
─If there are particularly strong secrets in the specialized credit finance company's bond market.
The number of personnel from companies issuing specialized credit finance company bonds is relatively large compared to other companies. This allows for differentiation from friends working at ordinary securities firms. Because specialized finance companies have a relatively high understanding of what products are needed in which situations or periods, they can respond appropriately compared to other securities firms.
─Overall, how would you assess last year’s market?
The corporate bond market was active in issuance. It issued a record number of corporate bonds, and specialized finance company bonds exceeded 100 trillion won. There were also cases where a single product of specialized finance company bonds was underwritten for over 10 trillion won. With interest rates lowered, it seems that corporations did not feel significantly burdened by the rates. The capital increase was a challenging year. Typically, the scale of paid-in capital increases is about 8 to 9 trillion won per year, but last year it only reached 5.5 trillion won. The only large corporation's capital increase was LG Display. The weak stock market and the government's value-up policy indicate an impact. With financial authorities paying more attention, the voices of minor shareholders have grown louder.
─If there is a transaction from last year that remains memorable.
The paid-in capital increase of LG Display is the most memorable. It was prepared for a long time, and the outcome was positive. It underwrote the largest amount among the capital increase of nearly 1.3 trillion won. The competition ratio for the capital increase public offering also exceeded 800 to 1, succeeding in the box office. Hanwha REIT (383.7 billion won) and Shinhan Alpha REIT (185.9 billion won), as well as Peptron (120 billion won), were also memorable. In terms of corporate bonds, LG Energy Solution's (1.6 trillion won) was a successful deal.
─How do you forecast the corporate bond market this year?
Based on the issuance trend early this year, it looks like it will follow a similar pattern to last year. However, it seems that the issuance of specialized credit finance company bonds might decrease. It also doesn't seem like there will be significant improvement in capital increases. Due to the difficulties faced by corporations, there will likely be many typical recession-type capital increases. Such capital increases are difficult to fully absorb in the market. Moreover, weaker corporations struggle with refinancing issuance. Since only amounts less than what was borrowed can be refinanced, they end up having to repay with existing money, ultimately having to endure adverse conditions. Among industrial sectors, the secondary battery, bio, and petrochemical industries still show signs of difficulty.
─If you could offer advice to bond investors.
Investors need to choose one of two directions based on their preferences. Whether to pursue high interest despite the risks, or to aim for safer bonds with lower interest. Of course, since the direction of interest rate cuts is clear, I think both are good investments. This year, the benchmark interest rate is expected to decrease by 0.5% to 1 percentage point (p). If targeting high-yielding bonds that come with risks, thorough research on the corresponding corporations is necessary. One should buy bonds from companies that they have confidence will not go into a workout, no matter how difficult things become.
─Are there any systems you would like to see improved or complemented?
For corporate bonds with a credit rating of A or higher, it is regrettable that when Korea Investment & Securities serves as the underwriter, it is not possible for Korea Investment Trust Management or its bond product department to hold those bonds. Even for those rated AA, managers can hold them, but internally they cannot be held. From the perspective of management, they want to include good bonds or sell good bonds from the retail department, but that is not possible. This seems to stem from concerns about insider trading or conflicts of interest, but it cannot be helped that such measures seem somewhat excessive. Especially since Korea Investment & Securities has a strong retail bond department, the regret is even greater.
☞What are specialized credit finance company bonds?
Bonds issued by specialized credit finance companies (also known as specialized finance companies) for fund procurement. These are bonds issued by card companies or capital companies seeking to borrow money.