Hyundai Engineering & Construction, the first among builders in the new year to conduct a book-building for corporate bonds, secured more than 900 billion won in orders, marking a successful sale. The result is attributed to a gradual recovery in the construction sector since last year and more investors seeking stable investments amid interest rate cuts.
According to the construction and investment banking (IB) industry on the 27th, Hyundai Engineering & Construction received a total of 910 billion won in orders in a public corporate bond book-building for institutional investors on the 21st. The initial target was 170 billion won, about 5.4 times smaller than the orders. By tranche (maturity), 280 billion won in orders came for the 2-year notes against 70 billion won sought, 490 billion won for the 3-year notes against 70 billion won sought, and 140 billion won for the 5-year notes against 30 billion won sought. Hyundai Engineering & Construction plans to upsize to as much as 340 billion won and issue the bonds on the 29th.
The bonds are green bonds, a type of ESG bond issued to raise funds for investments in eco-friendly projects such as renewable energy and climate change responses. Hyundai Engineering & Construction plans to use the proceeds for operating funds, including payments arising during eco-friendly construction and building projects that have received green building certification. The fund deployment period is presented through 2026, and until actual use, the funds will be managed in highly stable financial products such as bank deposits.
Industry officials cited Hyundai Engineering & Construction's strong credit quality and the new-year effect in the corporate bond market as reasons for the strong demand. Typically, in January to February, liquidity improves as institutional investors deploy funds, benefiting the bond market including new issues. While there is talk that the rate-cut cycle is ending, the upside for interest rates is limited and demand for carry trade (a transaction seeking revenue from interest rate differentials) is aligning, drawing in funds.
Hyundai Engineering & Construction's credit rating is AA- (stable), the highest among builders. Credit rating agencies said the company is set to swing back to profit after overcoming the shock of more than 1 trillion won in operating losses in 2024. The company kept a profit trend, posting cumulative consolidation sales of 23.0308 trillion won and operating profit of 534.2 billion won through the third quarter last year. However, its financial burden increased somewhat. As of the end of September last year on a consolidation basis, the liability ratio was 170.9%, up from 126.8% at the end of 2023.
Kim Hyeon, senior researcher at Korea Ratings, said, "Cash generation has somewhat weakened due to increased working capital burdens, but the company maintains a strong financial structure," and projected, "Based on business competitiveness and financial buffers, it will deliver stable operating results." Kim Chang-su, principal researcher at NICE Ratings, also noted, "The remaining contract amount for overseas loss-making projects is not large, and cost ratios are expected to improve mainly in the building and housing segments," seeing gradual improvement in operating results as possible.
However, some expect a polarization in fundraising through the corporate bond market among builders. A bond market official said, "Usually, thanks to the new-year effect, even slightly weaker corporations had no difficulty gathering demand, but this year there have already been two unsold cases, including SLL Central," adding, "Builders with strong credit ratings like Hyundai Engineering & Construction will succeed in raising funds on favorable terms, but if not, polarization is evident, so some may skip bond refinancing issues or turn to other methods such as CP (commercial paper)."