Global monetary policy is shifting back toward tightening, complicating corporate funding strategies. Following the U.S. Federal Reserve's hawkish stance, the Bank of Korea is also considering further interest rate hikes. As a result, companies are likely to face increased borrowing costs through corporate bonds and bank loans, while low-credit firms may accelerate moves to reduce investments and raise capital through equity offerings.
According to industry sources on June 18, companies are concerned about potential funding pressures due to anticipated interest rate hikes in the second half of the year. Although rates remain unchanged for now, forecasts suggest that a tightening trend will continue at least by the latter half of the year.
On June 17, the Federal Reserve announced it would keep its benchmark interest rate steady at 3.5% to 3.75%, while signaling the possibility of future increases. This is effectively a 'hawkish hold.' Experts predict that rising inflation pressures from conflicts in the Middle East will lead the Bank of Korea to raise rates in July, joining the tightening trend.
The rise in market interest rates is already influencing government bond yields, which in turn affects corporate bond rates. Even if companies issue bonds at previous levels, they will face higher interest costs.
Corporate bond rates are showing signs of increase. According to the Korea Financial Investment Association's Bond Information Center, the yield on three-year public non-guaranteed corporate bonds (rated AA-) rose slightly from 4.267% at the beginning of last month to 4.333% on June 17.
The increase in funding costs disproportionately impacts lower-rated companies. During periods of rising interest rates, investors tend to flock to safer, high-quality bonds, reducing demand for lower-rated corporate bonds. Consequently, lower-rated firms may find it increasingly difficult to issue bonds. Companies with maturing bonds in the second half of the year will face both refinancing pressures and rising interest costs. This year, corporate bonds maturing in the second half total approximately 33.57 trillion won.
Bank loans are also unlikely to serve as a viable alternative. Rising market interest rates lead to higher borrowing costs for companies, increasing the burden of operational and capital investment expenses. Additionally, banks, wary of default risks, are tightening loan approval processes, which could further deteriorate funding conditions for small and medium-sized enterprises.
As a result, companies are expected to adopt a more conservative financial strategy in the second half of the year. They are likely to delay large capital investments or mergers and acquisitions and may seek to bolster capital through public equity offerings or third-party allocations. The business community anticipates that firms will proactively manage refinancing schedules or operate cash assets conservatively. Kwon Nam-hoon, a professor of economics at Konkuk University, stated, "Market interest rates are already rising. While companies may have been somewhat prepared for the ongoing signs of rate hikes, the shock is unavoidable."
* This article has been translated by AI.
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