[THE INVESTOR] The value of “AA” grade and higher corporate bonds hit the year’s low in July, falling more than 60 percent on-year, as South Korean firms seek to consolidate their finances.

According to finance industry data, the value of “AA” or higher unsecured corporate bonds issued in July came to 1.22 trillion won (US$1.10 billion). In comparison, the figure for June stands at 2.49 trillion won, and that for July 2015 stands at 2.75 trillion won. 

The value of all unsecured corporate bonds issued in July came to 1.77 trillion won, down 59 percent from a year ago.

Experts say that as the performance of high credit rating firms improve, their need to raise capital has fallen, and many such companies are opting to redeem bonds with cash reserves rather than funds raised with new bonds.

Samsung SDI, rated “AA”, redeemed 200 billion won with cash on Aug. 1, and plans to do the same with the 100 billion won bonds that mature in October. Samsung C&T, Hyundai Steel and POSCO also plan to tap their cash reserves to redeem bonds worth 330 billion won, 220 billion won and 500 billion won, respectively. Samsung C&T and POSCO are rated “AA+”, and Hyundai Steel is rated “AA”.

While a number of companies have indicated that bonds could be issued should the benchmark rates be lowered further, experts say that the current trend is likely to continue.

The country’s benchmark rate was lowered to a record-low of 1.25 percent in June, and the Bank of Korea froze the rate in July citing the rising household debt. BOK Gov. Lee Ju-yeol also said at the time that further changes will be considered after the effect of the government’s economic stimulus measures are gauged.

By Choi He-suk (cheesuk@heraldcorp.com)