Seoul issues first dollar bond in four years
2013-09-05 10:53:39
Seoul is timing the issue ahead of an expected rise in credit risk as investors fret over the Federal Reserve’s reduction of its massive stimulus programmes and a possible US military strike on Syria.
The bond sale is for refinancing purposes and the government is marketing 10-year notes at a spread of about 135 basis points above the equivalent US Treasury note, the finance ministry said on Wednesday. The government last sold $1.5bn each of five and 10-year notes in April 2009.
Final pricing was decided on Thursday monring, and the 10-year notes were sold at 115bps above equivalent US Treasuries.
“There is some uncertainty regarding the Fed’s move, but we think that now is the right time to do it because interest rates and volatility are likely to increase, if the tapering issue comes to the head,” said Kim Min-kyu, an official at the ministry’s international financial policy division.
Mr Kim added that the government made the decision to pave the way for local companies to raise money in the international debt market by setting benchmark interest rates. Local companies were unable to issue bonds overseas in the first half because interest rates shot up in April and May due to geopolitical risks related to North Korea and concerns over the reduction of US quantitative easing.
“But market conditions have stabilised since August so we decided to do it before the Fed’s [September 17-18] policy meeting,” said Mr Kim. “The response from international investors has been not bad so far. We hope that the deal will help spur interest in Korean bond issuances going forward.”
International bond sales in South Korea increased 12 per cent in the first half of this year to $5.5bn from a year earlier, as the growth outlook of Asia’s fourth-largest economy improved on the back of monetary easing and a $15.7bn supplementary budget. The Bank of Korea has cut interest rates three times since June last year to 2.5 per cent with the Korean economy forecast to grow 2.7 per cent this year.
Fitch Ratings last year upgraded its sovereign ratings on South Korea to AA-, the fourth-highest investment grade, citing the country’s strong fiscal fundamentals and its improving economic outlook. “Korea’s ratings are underpinned by its fundamental strengths, which include a resilient economy and a robust macro economic policy framework,” Fitch analysts led by Art Woo said in a note on Wednesday.