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Companies still face hard times in refinancing bonds


SEOUL, April 7 (Yonhap) -- Low-grade companies, mostly builders, shipbuilders and shippers, still face hurdles in tapping the local debt market as investors shun risk in favor of high-rated corporate debts and the safest government debt, data showed Monday.

A total of 9.4 trillion won (US$8.93 billion) worth of corporate debts matured in the January-March period, 45.8 percent of which were refinanced with new debt, with the remainder paid off with debt issuers' retained earnings or their own money, according to the data compiled by Samsung Securities.

Situations are much worse for some marginal firms. Cash-strapped construction firms refinanced some 12 percent of their 1 trillion won in debts that matured in the first quarter by selling new debt. Logistics firms and shipbuilders had a combined 1 trillion won worth of debts that matured in the first three months of the year, but such debts were paid off with their own money or with capital borrowed from banks and other financial institutions.

In contrast, 71 percent of corporate debts rated AA- or higher that matured in the January-March period were refinanced with newly sold debts, according to the data.

"Low-rated firms paid off maturing debts with their own money, and they will be forced to sell shares or seek other ways to pay off maturing debts," said Choi Jong-won, an analyst at Samsung Securities.

South Korea's corporate bond market has been anemic because of the prolonged global economic downturn, which has hurt ailing companies that are unable to raise funds due to investors' lack of interest in low-quality debts.

Since last year, the slump has further worsened as a slew of big name companies in South Korea defaulted on cash shortages, including Tong Yang Group, the 38th-largest conglomerate now undergoing restructuring under court order.

Analysts said that institutional investors, led by insurers and pension funds, are forced to gobble up high-rated corporate bonds as the country's public organizations, under pressure to reduce liabilities, are moving to cut back on debt sales.

Last year, sales of general corporate bonds reached 41.56 trillion won, sharply down from 57.17 trillion won a year earlier as the U.S. Fed's expected tapering of its stimulus, combined with a liquidity crunch at several companies, pushed up yields.

A total of 651 billion won worth of debts rated A or below, meanwhile, were sold last month, compared with 320 billion won a month earlier.

But such an upturn does not signal an improvement in the local corporate bond market, analysts said.

"An economic recovery should precede a recovery in the corporate bond market, and that should trickle down to some shaky sectors such as construction," said Kim Soo-yang, an analyst at KB Investment