South Korean A-grade papers usually shunned in the local market that favors public and top investment-grade debt are selling like hot cakes as the heat in the equity market spills over to the debt market.

The A-category Hanwha Corp. drew 477.5 billion won ($426.9 million) orders from institutional investors for its 100 billion won offering in three-year corporate bonds in a book building session on June 1. Oversubscription priced the debt 60 basis points below the price band set by credit rating agencies.

It is a dramatic turnaround for Hanwha Group whose companies’ past issues were undersubscribed due the risk related to cash-strapped units such as Hanwha Engineering & Construction Corp.

Investment sentiment turned favorable as the group names have begun to report stronger earnings. Hanwha Chemical Co., Hanwha Total Petrochemical Co., and Hanwha Energy Corp. have also tapped the debt market for fund-raising.

The A group has turned decisively active recently as investors shifted attention to higher-yield bonds on improving corporate performance.

Last month, Hansol Paper Co., a manufacturer of paper products in Korea, offered its first issue upon merger with Hansol Art One Paper Co. The company, which had aimed to issue 70 billion won in three-year papers, drew 287 billion won worth orders from investors. It bumped up the offering scale to 100 billion won..

Hansol Paper is an industry leader that raised 122.2 billion won in operating income last year. Its appeal was added through synergy created from its merger with Hansol Art One Paper and expectation for rebound in prices of paper products.

Also last month, TS Corporation (A-), Hanwha Chemical (A+), Kolon Industries Inc. (A0), Daelim Industrial Co. (A+), Lotte Fine Chemical Co. (A+), and Kumho Petrochemical Co. (A-) all raised funds beyond their expectations due to overwhelming demand.

A-rated bonds traded at 3.009 percent as of June 1, 1.365 percentage points above the three-year government debt yielding 1.645 percent.

By Park Yoon-koo

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]