Korea’s Swiss Debt Gets Boost From Virus Success, UBS Says
(Bloomberg) -- The Korea-Swiss bond connection looks here to stay.
South Korea has over the years been one of the biggest overseas sources of corporate notes denominated in Swiss franc, as its issuers have found borrowing costs in the currency to often be favorable and investors have been keen to diversify into company debt of a highly-rated Asian nation.
The country’s comparative success so far in fighting the coronavirus pandemic has boosted the appeal of debt from the nation’s issuers in all currencies. It will likely continue to do so for bonds in the Swiss franc too, according to UBS Group AG.
“There’s a perception among investors that Korea has the virus relatively under control without imposing a lockdown or other heavy restrictions, and that will lead to less damage to its economy,” said Peter Chang, the Seoul-based head of global capital markets Korea at UBS, the biggest arranger of Korean firms’ Swiss franc notes.
Korean companies have sold a combined 1.3 billion Swiss franc ($1.37 billion) of notes so far in 2020, a 13% increase from a year earlier, Bloomberg-compiled data show. That’s the second-most Swiss notes the country has sold in eight years as of June 19, and makes it the biggest overseas issuer after Canada.
South Korea has several positive factors in the eyes of Swiss bond investors. While it was one of the worst-hit nations in the early stages of the outbreak, a massive testing and tracing regime has allowed it to avoid severe steps such as a lockdown. That’s limited economic damage, and Korea is forecast to outperform all other advanced Group of 20 economies this year, according to Moody’s Investors Service.
It’s also one of the only sovereign issuers in Asia along with Hong Kong and Singapore rated AA or higher.
In addition, Swiss debt investors are interested in environmental, social and governance bonds that Korean issuers are increasingly selling as Seoul pushes for more green projects, Chang said.
Hyundai Capital Services Inc., for example, priced 300 million franc of three-year green notes last week, while Korea Land & Housing Corp. sold sustainability bonds in the currency early this month.
Of the $16.1 billion of offshore bonds sold by Korean issuers this year, Swiss franc notes came in third place at 8.3% of the total issuance, following U.S. dollar and euro debt, according to Bloomberg-compiled data. Investor demand for all Swiss currency bonds has been strong so far this year, with total sales rising 12% to 37.8 billion franc, the most since 2012.
It’s sometimes more favorable due to market rates for borrowers to issue franc notes and then swapping the proceeds into won, compared with doing so after selling dollar debt, another reason why Korean firms find Swiss debt appealing, according to Chang.
“There are many Korean issuers considering selling franc notes on a regular basis,” said Chang.
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