Hanjin, a BBB+-rated logistics company under Hanjin Group, failed to fully sell a 400 billion won corporate bond offering in demand forecasting held the day before. The 1-year tranche received 190 billion won in orders against a 200 billion won target, leaving 10 billion won unsold. Market analysts attribute the shortfall to the disappearance of retail investors and high-yield fund demand following the Central Group bankruptcy, rather than concerns about Hanjin's creditworthiness, as the company holds a BBB+ rating with a positive outlook.
Hanjin Receives 440 Billion Won in Orders for 400 Billion Won Bond Issuance
According to the investment banking industry, Hanjin collected a total of 440 billion won in orders for a 400 billion won corporate bond issuance. The 1.5-year tranche募集 of 200 billion won received 250 billion won in orders, while the 1-year tranche募集 of 200 billion won received 190 billion won, resulting in 10 billion won unsold.
The 1-year tranche failed to meet募集 volume even at the upper band of the desired spread at +50bp, while the 1.5-year tranche filled its募集 amount at the individual par rate level. This marked the first BBB-grade demand forecasting since the Central Group bankruptcy.
Hanjin holds a BBB+ rating with a positive outlook, representing the highest credit quality within the BBB grade. The credit ratings outlook for Korean Air (A) and holding company Hanjin Kal (A-) were recently upgraded, with the group's overall credit quality on an upward trajectory.
Retail Demand Described as Completely Absent by Market Participants
A bond market official stated that "retail demand should be considered completely absent." The official added that "high-yield funds are also approaching very conservatively because there have been cases of defaults in BBB-grade bonds held in IPO funds."
BBB-grade bond demand typically consists of approximately half retail investors and half public IPO high-yield funds, but both sides have disappeared. Kim Eun-ki, a researcher at Samsung Securities, noted that "Hanjin has a positive outlook attached to its rating and its performance is not bad," adding that "the group as a whole is on track to rise to an A-minus (A-) rating next year, so there is no problem with the fundamentals themselves."
One bond market official stated that "BBB-grade interest rates have been overvalued compared to other grades due to special demand such as high-yield funds," adding "I see this unsold result as a natural outcome."
IPO Market Slump Eliminates High-Yield Fund Purchasing Capacity
Kim stated that "the initial public offering (IPO) market return rate is virtually at zero level, so there is almost no capital inflow into IPO high-yield funds," diagnosing that "these funds themselves have no capacity to make additional purchases."
IPO high-yield funds receive priority allocation of 5% of KOSPI and 10% of KOSDAQ IPO shares if they fill more than 60% of total assets with domestic bonds and more than 45% with BBB+ or lower high-yield bonds under the Restriction of Special Taxation Act. This special demand that has purchased safe BBB-grade bonds regardless of interest rates to meet the inclusion ratio has dried up.
Low absolute interest rates added to the burden. Kim cited the falling interest rate attractiveness as background for the 1-year tranche going unsold, stating that "Hanjin's 1-year tranche can secure similar interest rates with CP or bank bonds."
BBB-Grade Bond Issuance Down 57.6% in First Half
The issuance market shows BBB-grade bonds rapidly contracting. According to Yonhap Infomax issuance maturity statistics, BBB-grade (BBB+ to BBB) unsecured corporate bond issuance in the first half declined 57.6% to 351 billion won compared to the same period last year (827 billion won).
On a net issuance basis, the first half of last year's 177 billion won net issuance turned into 652 billion won net redemption this year.
While the prevailing forecast is that public fundraising for BBB-grade companies will not be easy for the time being, Kim Ki-myung, a researcher at Korea Investment Securities, stated that "recovery of investor sentiment in the BBB-grade market will require time, but as time passes, differentiation by company according to fundamentals will appear," predicting that "avoidance of the entire BBB grade will not continue."
FAQ
Why did Hanjin fail to fully sell its bond offering despite holding a BBB+ rating?
Market participants attribute the failure to the disappearance of retail investors and high-yield fund demand following the Central Group bankruptcy, rather than concerns about Hanjin's creditworthiness. A bond market official stated that retail demand should be considered completely absent, while high-yield funds are approaching conservatively due to previous defaults in BBB-grade bonds.
How has the IPO market affected high-yield fund demand for BBB-grade bonds?
Kim Eun-ki of Samsung Securities stated that the IPO market return rate is virtually at zero level, resulting in almost no capital inflow into IPO high-yield funds. These funds lack capacity to make additional purchases of BBB-grade bonds, eliminating a key source of demand that previously purchased safe BBB-grade bonds to meet regulatory inclusion ratios for priority IPO allocations.
