© Archyde.com. Financial market uncertainty… Restart of the 20 trillion-won loan fund
The financial authorities have begun reviewing the restart of the bond market stabilization fund (bond fund) in order to respond to the sudden cooling of the corporate bond and commercial paper (CP) markets. It is said that it is strongly considering the amount of 20 trillion won. Following the creation of a 10 trillion won securities market stabilization fund, the financial authorities are mobilizing all available market stabilization tools, including debt financing funds.
According to financial institutions on the 16th, the Financial Services Commission began an internal review to create a loan fund. As interest rates rise this year, corporate bond issuance plummets, raising concerns regarding corporate financing. Recently, as the real estate market contracted and the ‘Legoland Asset-Backed Commercial Paper (ABCP)’, which Gangwon-do promised to guarantee debt, fell into default (default), a situation in which the project financing (PF)-backed securities market was rapidly freezing was also considered. .
An official from the financial authorities said, “The size of the bond fund will be discussed while watching the market conditions.”
The bond fund was first created in 2008 with a scale of 10 trillion won to expand the demand for corporate bond purchases during the global financial crisis. In order to respond to the COVID-19 crisis in 2020, the maximum target is 20 trillion won. The financial authorities first raised regarding 3 trillion won and executed the investment through the ‘capital call’ method, which provides funds whenever necessary, and now has 1.6 trillion won remaining.
It is expected that the remaining 1.6 trillion won will be used to purchase corporate bonds and CPs first when the loan fund is reopened, and banks and securities companies will additionally invest the insufficient funds through renegotiation. The 60 trillion-won securitization securities market is virtually paralyzed… Will the ‘Chain Fund’ breathe?
Financial market instability… Review of re-operation of bond market stabilization fund
It is analyzed that the reason the financial authorities took out the card to restart the bond market stabilization fund (bond fund) is because they judged that the financial crunch in the corporate bond and commercial paper (CP) market was that serious. The project financing (PF) securitization securities market, such as ABCP, which was leading the short-term fund market due to the default of the Legoland Asset-Backed Commercial Paper (ABCP), which Gangwon-do promised debt guarantee, has practically stopped working. Corporate bond issuance has also declined sharply in the followingmath of interest rate hikes. It is noteworthy whether the market, which has been contracted by the restart of the bond fund, will revive. Larger image CP interest rate surges due to ‘Gangwon-do shockwave’ According to the Financial Investment Association on the 16th, the 91-day CP rate of the highest (A1) credit rating rose 0.02 percentage point on the 14th to 3.78% a year. The interest rate rose from 3.13% per annum on the 21st of last month without missing a single day.
The surge in CP interest rates is the followingmath of a surge in interest rates on PF-backed securities, which have been strengthened by securities companies, local governments, and construction companies due to the ‘Gangwon-do ABCP incident’. So far, PF-backed securities with excellent credit ratings have had no major problems in digesting the volume in the market. However, since Gangwon-do failed to fulfill its obligation to guarantee payment of securitized securities in a timely manner, distrust grew and it became difficult to find suitable investors even if interest rates were raised. Gangwon-do has announced that it will fulfill its payment guarantee obligations as market unrest grows, but the confusion is aggravating as it does not provide a specific schedule.
Securities companies that might not find investors are putting out the ‘urgent fire’ by acquiring PF-backed securities with their own funds. An official from a securities company said, “The interest rate on A1 grade PF-backed securities, which was in the 4% range last month, has exceeded 7-8% a year.
Securities companies have been increasing the issuance of PF-backed securities by providing credit reinforcement such as purchase agreements and purchase confirmations, taking advantage of the booming real estate market. According to Nice Credit Ratings, the balance of PF-backed securities issued by securities companies for credit enhancement stood at 46.1 trillion won as of the first half of this year, an increase of 11.9 trillion won from the first half of last year (34.11 trillion won). If you include PF-backed securities (15.35 trillion won in the first half of this year), which construction companies have reinforced, the total outstanding balance will exceed 60 trillion won. “Debt funds, insufficient to fundamentally resolve market instability” There is a high concern in the industry that the short-term funds market, such as PF-backed securities, might spread to corporate bonds. Even short-term investors such as ABCP with a maturity of 3 months are difficult to find, so investor sentiment for corporate bonds with maturities of 1 year or longer is likely to decline.
The domestic corporate bond market has virtually entered a state of ‘closure of stores’ ahead of the end of the year. According to the Financial Investment Association, corporate bonds were repaid in a net of 2.151.7 trillion won this month. This means that the maturity of the corporate bond exceeds the issuance amount by that much. Construction companies, which are highly concerned regarding the deterioration of the industry, are holding on to cash repayment. Recently, it is known that some high-quality conglomerates, such as Lotte, have delayed the issuance of corporate bonds due to worsening market conditions.
Prospects are mixed as to how much the reopening of bond funds will relieve the corporate bond market crunch. Yoon Yeo-sam, a researcher at Meritz Securities, said, “If the bond fund is reopened, it is expected that it will serve as a supporter to alleviate the cooled investor sentiment.”
There is an opinion that the government can show its will to stabilize the market, but it cannot be a fundamental solution. Kim Eun-ki, a researcher at Samsung Securities, said, “The corporate bond and CP market instability is caused by a lack of liquidity due to tightening monetary policy rather than credit risk. It is also pointed out that additional measures are urgently needed in the short-term money market, centered on PF-backed securities.
Reporter Lee Dong-hoon/Jang Hyeon-joo leedh@hankyung.com
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