As has been consistently noted to customers since the end of last year, the 'beginning-of-the-year effect,' where demand for corporate bonds concentrates at the start of the year, is rapidly diminishing. This year's corporate bond market seems likely to show clear polarization by industry.
On the 11th of last month, at the headquarters of SK Securities in Yeouido, Seoul, Kim Jin-tae, head of the corporate finance division, said, "While concerns were primarily focused on the construction and secondary battery industries last year, this year, there is an increasing negative perception surrounding the chemical industry as a whole."
Kim is known as an 'SK man' who has been with SK Securities since 1999, marking his 27th year in the company. He began his career in the corporate finance team during the period when companies were eagerly listing on the KOSDAQ due to the venture boom. After moving through the strategy planning team and private equity fund team, he returned to corporate finance and is currently responsible for debt capital markets (DCM). The following is a Q&A.
—There are concerns that U.S. President Donald Trump's extensive tariff imposition will impact the corporate bond market.
It may have some effect on corporate bond prices or interest rates. However, the concern that corporations will be completely unable to issue corporate bonds is excessive. Institutional investors have no choice but to invest in corporate bonds from an asset allocation perspective. Especially in a situation where real estate investments are difficult, a certain portion of domestic bonds must be held. There may be a phenomenon where better bonds are sought within the bonds.
—SK Securities has consistently held the 5th position in corporate bond issuance but has now fallen to 6th.
Excluding finance company bonds, it is 5th. The finance company bond market has a strong brokerage nature, so we do not pay much attention to it. SK Securities considers the volume of general bond issuance as an internal performance indicator because it shows how strong the coverage on corporations is. However, due to poor real estate finance, large companies are strengthening their DCM efforts, and we are watching this intensifying competition closely.
—To summarize last year's market.
It was a year of restructuring. Corporations sought survival by selling divisions or subsidiaries. There were many governance adjustments as well. Corporations that found it difficult to procure financing on their own attempted to merge with more financially sound corporations. There was also strong demand for capital expansions to improve financial structures. In particular, perpetual bonds were issued in large quantities. The volume of perpetual bonds, typically around 1 trillion won, reached 4 trillion won last year. This was largely due to insurance companies needing to meet the Kick's ratio (a measure of an insurance company's capital adequacy).
—If you remember any notable transactions from last year.
The merger of SK Innovation and SK E&S stands out. We primarily advised on creditor protection procedures related to the merger. While shareholder protection is important in a merger, creditor protection is equally significant. Prior to the merger, we held meetings with bondholders to obtain consent and even conducted buyback transactions to repurchase the issued bonds in the market. Many employees in the division participated over three months, and we were relieved that the merger concluded smoothly.
—What are your expectations for the corporate bond market this year?
It seems that the keyword of restructuring will continue this year as well. Nowadays, the chemical-related industry is frequently mentioned, but the semiconductor legacy processes are also not performing well. Existing processes have been overtaken by those in China. Survival now requires aiming for truly specialized fields. On the other hand, industries related to energy and infrastructure, such as transformers, along with those linked to artificial intelligence (AI), will stand out. This reality will inevitably lead to polarization in the bond market. It also appears difficult to expect significant interest rate cuts in the medium term, raising concerns from a macroeconomic perspective.
—If you could give advice for bond investors.
It may sound cliché, but ultimately one must study diligently. Understanding interest rates is particularly crucial. When acquaintances ask, I do not mention specific securities. To give a hint, there may be attractive bonds available from an individual's perspective that institutional investors cannot purchase due to regulations or internal guidelines. Furthermore, individual investors tend to be overly obsessed with interest rates. Initially, bond investment is meant to reduce risk, but merely pursuing high revenue could lead to potential loss of principal.
—Are there any systems you would like to see improved or supplemented?
Focusing on investor protection often leads to constraints on corporate restructuring. For example, when a corporation sells a subsidiary, in the case of public bonds, it may be required to repay a significant portion of the previously issued bonds, creating a heavy burden for the corporation. Additionally, while a stock can be delisted if the majority shareholder holds 95%, bonds can occasionally prevent delisting due to a minor amount of 10,000 won bonds. I hope there will be thorough consideration of these aspects.