 |
| Heungkuk Life Insurance headquarters in central Seoul / Yonhap |
DB Life also decides to delay bond repayment
By Anna J. Park
Concerns are growing over increased signs of credit strains in local credit markets, as Heungkuk Life Insurance decided to delay buying back $500 million of its dollar-denominated perpetual bonds.
In a filing to the Singapore Exchange (SGX) earlier this week, the insurance company stated it had decided to postpone its call option exercise over its $500 million perpetual bonds, which had been scheduled for Nov. 9, citing extremely unstable financial market conditions.
"In order to maintain stable capital management, Heungkuk Life Insurance has been planning to issue subordinated capital securities prior to Nov. 9, 2022, the initial reset date. However, extremely unstable financial market conditions both in Korea as well as internationally, including sudden changes in interest rates, have made such an offering impracticable at this time," the company's official filing statement to the SGX reads.
As written in the statement, the life insurer had originally planned to raise necessary capital to redeem the bonds by issuing $300 million worth of dollar-denominated bonds and $100 million worth of won-denominated subordinated securities, but the plan was scrapped late last month due to unstable market conditions.
"As the company notified the SGX in its official filing, the decision to delay the call option exercise of the perpetual bonds was made due to the unfavorable financial market conditions. The company is currently doing its best to stabilize the situation and will try to exercise its call option of the bonds at the earliest time that it's possible," an official from Heungkuk Life told The Korea Times, Thursday.
As perpetual bonds, unlike general corporate bonds, do not have a fixed maturity date, they usually have a call option feature allowing issuers to redeem them on a fixed schedule. Thus, Heungkuk Life's decision not to exercise its call option early this month does not constitute a default situation. Yet, such a decision is very rare in the corporate bonds market. It is the first time in 13 years that a Korean financial company has decided to delay its bond repayment call option since 2009 when Woori Bank made a similar decision.
Some market watchers view that its negative impact will be limited.
"Strictly speaking, the delay of the call option exercise is not a breach of contract, and it's a result of strained bond issuance market conditions," said Kim Sang-man, an analyst at Hana Securities.
But other market analysts view that the decision will worsen investor sentiment over other Korean companies' bonds.
"The situation could add increased shock and anxiety to the local credit market, which has already been strained over the Legoland theme park default crisis," Yoo Seung-woo, an analyst at DB Financial Investment, pointed out. "Other local insurers might face greater difficulty issuing perpetual bonds or they could have to suggest higher yields for their notes."
With the delay of Heungkuk Life's bond repayment, DB Life has also decided to delay its optional repayment, originally scheduled for Nov. 13, to next May. The life insurer said the decision was made following a consultation with its investors. Hanwha Life has also delayed its issuance of dollar perpetual bonds to sometime in the next year.
Financial authorities said they'd known about the situation as they have been in close consultation with Heungkuk Life, and will continue to strengthen monitoring of the corporate credit market.
It is estimated that a total of $25 billion worth of dollar-denominated bonds issued by Korean companies will reach maturity by next year.
![[INTERVIEW] Partnerships with Korean companies help Delta Air Lines' post-pandemic recovery](https://img.koreatimes.co.kr/upload/thumbnailV2/892c5f8b83fc45018380807ff3c3d42b.jpg/dims/resize/178/optimize)
![[VIDEO] Do Koreans know K-pop idols well?](https://img.koreatimes.co.kr/upload/thumbnailV2/230126_koopstreet_web_3be4f49481002.jpg/dims/resize/178/optimize)
