South Korea credit market resilient to builder’s debt woes, so far

By Jihoon Lee and Cynthia Kim

SEOUL (Reuters) – South Korea’s credit market is revealing indications of stability less than 2 weeks after authorities promised to broaden a $66 billion program if required to restrict the fallout from a contractor’s financial obligation issues, experts stated, however included that it was still early days.

A statement by Taeyoung Engineering & & Construction, the nation’s 16th biggest contractor, on Dec. 28 to reschedule its financial obligation has actually sustained issues about a credit crunch in cash markets, as lots of realty jobs count on the short-term financial obligation market to fund building and construction jobs.

On Tuesday, the yield on 91-day industrial paper was priced quote at 4.24%, below a 10-month high of 4.31% in early December.

It compares to a 14-year high of 5.54% in late 2022, when a missed out on bond payment by a regional government-backed designer of amusement park Legoland triggered a credit crunch in monetary markets.

“We carefully do not see methodical dangers from the occasion as our company believe the federal government and authorities are most likely to recycle policy tools from 4Q22, if essential,” Citi financial experts Jiuk Choi and Jin-wook Kim stated in a report.

“Market effect has actually been restricted as monetary authorities are proactively revealing policy assistance and broadening when required,” stated Choi Seong-jong, a credit market expert at NH Investment Securities.

Authorities have actually fasted to restrict any spillover from Taeyoung’s financial obligation difficulties, and have actually prompted the contractor to satisfy lenders’ need to inject more liquidity into the business by offering its properties, including its stakes in regional broadcaster SBS.

Financing minister Choi Sang-mok has actually sworn several times to “broaden market stabilisation steps adequately as required,” although he has actually dismissed injecting taxpayers’ cash to bail out Taeyoung.

Shares of Taeyoung dropped 37% in December, striking their least expensive considering that early 2005, however have actually rebounded almost 50% up until now in January.

South Korea’s home market, an essential sector driving development and impacting monetary markets, has actually been slow considering that mid-2022 as need moistened due to the reserve bank’s aggressive rate walkings to tame inflation.

“Policymakers are approaching the concern with targeted steps, separating rates of interest policy and liquidity assistance. They may think about decreasing rate of interest if market jitters aggravate, however not pre-emptively,” stated Cho Yong-gu, a fixed-income expert at Shinyoung Securities.

“There is still some stress over Taeyoung as the problem is still at the early phase and might get rate after basic elections in April,” Cho stated.

($1 = 1,314.8200 won)

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