SEOUL, August 04 (AJP) —South Korean companies increasingly turned to short-term borrowing in the first half as higher funding costs and a sluggish capital market outside the semiconductor sector pushed issuers away from longer-term financing.
According to the Financial Supervisory Service (FSS) on Tuesday, companies raised a record 1,272.8 trillion won ($917 billion) through commercial paper (CP) and short-term notes during the January-June period, up 68 percent from a year earlier, while equity and corporate bond issuance fell 15.6 percent to 126.6 trillion won.
Electronically registered short-term notes — debt securities with maturities of up to one year sold directly to investors — surged to a first-half record 990 trillion won ($713 billion), nearly doubling from a year earlier. Commercial paper, unsecured short-term promissory notes, also reached a record 282.7 trillion won, up 19 percent.
The shift reflected growing reliance on short-term funding by both financial institutions and non-financial companies, which together issued an additional 441.9 trillion won in short-term debt from a year earlier. Issuance of asset-backed commercial paper also increased by 7.1 trillion won.
Brokerages were among the biggest issuers as surging retail stock trading increased demand for margin financing and settlement funding.
For non-financial companies, however, the move underscored the widening divide in corporate credit markets. With long-term borrowing costs remaining elevated, lower-rated issuers increasingly opted for shorter maturities instead of locking in expensive bond financing.
According to the Korea Financial Investment Association, yields on three-year BBB-minus unsecured corporate bonds stood at 10.258 percent, more than double the 4.462 percent yield for AA-minus issuers. The sharp funding premium effectively shut many lower-rated borrowers out of the long-term bond market.
The deterioration was also evident in direct financing.
Total equity and corporate bond issuance dropped 15.6 percent from a year earlier to 126.6 trillion won, driven largely by weaker corporate bond issuance.
Equity fundraising fell 29.6 percent to 2.98 trillion won as initial public offerings declined to 28 from 42 a year earlier and most listings were relatively small. Rights offerings also dropped 29.5 percent to 1.96 trillion won because there were fewer large capital raisings exceeding 100 billion won.
Corporate bond issuance declined 15.2 percent to 123.6 trillion won. Corporate bond sales plunged 31.5 percent to 25.9 trillion won, primarily because companies issued fewer refinancing bonds.
Refinancing dominated issuance.
Debt rollovers accounted for 72.9 percent of proceeds, while only 23.6 percent funded operating expenses and just 3.6 percent financed capital investment, highlighting limited appetite for new investment despite improving economic growth.
Financial bond issuance fell 7.2 percent overall as weaker issuance by non-bank financial institutions offset modest increases by banks and financial holding companies. Asset-backed securities issuance also declined 30.6 percent to 7.3 trillion won.
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