South Korea’s corporate bond sales soar

More South Korean companies are issuing bonds to secure cash as they fear a surge in borrowing cost amid rising interest rates and lower earnings as the economy falters.

In January, the Bank of Korea reported that South Korea’s economy had contracted in the final quarter of 2022 – for the first time since Covid-19 triggered two successive quarterly declines in H1 2020 – as a post-pandemic spending spree faded and global trade slumped. Gross domestic product (GDP) shrank 0.4% in the October-December period from the previous quarter, after a 0.3% gain in Q3 2022.

The BoK began hiking interest rates in August 2021, most recently announcing a 0.25% increase in the keynote rate to 3.50% in January this year. South Korea’s inflation rate, which saw the consumer price index (CPI) peak at 6.3% last July 2022 had eased to 4.8% by February 2023. Although some analysts believe the policy tightening cycle has finished, many Korean brokerage houses expect higher interest rates to continue in the coming months and  borrowing costs to rise.

According to various securities industry sources, Korean companies sold Won (KRW) 33.2 trillion (US$25.3 billion) worth of bonds in the first three months of 2023, up 30% from KRW25.4 trillion in Q1 2022.

“Companies are meant to be borrowers, but the financial crisis of 2008 and subsequent falling rates over the last decade allowed them to suffer little pressure from loans,” said Kim Hak-gyun from Shinyoung Securities Co. “The benefit is coming to an end, with rising interest rates.”

An analysis by Maeil Business News of the top South Korean 50 companies by market capitalisation, Korea Electric Power Corp. (KEPCO) had the highest borrowing costs in 2022 at KW2.81 trillion, up 47.2% from KRW1.9 trillion in 2021.

The coupon rate soared to 5.99% in November 2022 from 2.53% earlier in the year. The state-run utility sold more bonds to narrow the losses, raising KRW31.8 trillion in corporate debt last year, against KRW10.3 trillion in 2021.

KEPCO raised KRW7.14 trillion, or 22% of its entire debt at a coupon rate of more than 5%. Mounting borrowing increased its net losses, which reached KW24.4 trillion last year from KRW5.21 trillion in 2021.

Other companies are also under pressure. Samsung Electronics reported borrowing costs of KRW763 billion in 2022, up 77% from KRW431.5 billion in 2021. Those of semiconductors producer SK hynix doubled to KRW533.1 billion from KRRW260 billion during the same period. SK innovation and POSCO Holdings Inc. were among other big names that reported sharp rises.

Some small and mid-sized firms are struggling to meet higher interest payments. According to Korean stock tracker FnGuide Inc., 726 of 2,156 companies surveyed had reported an interest coverage ratio of under 1 in 2022, including 583 that reported operating losses. The figure marks a 9.2% increase from 665 companies in 2021.

Companies that raised funds at a high rate last year face the prospect of excessive costs in debt. According to the Korea Financial Investment Association, the yield on three-year corporate bonds rated AA- doubled to up to 5.736% in October 2022 when a credit market crisis triggered by a debt default by the developer of the Legoland Korea theme park caused bond prices to plunge, more than doubling from 2.4-2.5% in 2021.

 

Cineworld emerges from bankruptcy via debt restructure

UK cinema operator Cineworld, the world’s second-largest cinema chain, has reached a deal with its lenders to restructure its debt and emerge from bankruptcy and has also dropped plans to sell its US, UK and Ireland businesses.

In a statement, Cineworld detailed a conditional restructuring deal with lenders that, if approved, would see the operator emerge from the Chapter 11 bankruptcy process before H2 2023. The proposed agreement would reduce the company’s indebtedness by around US$4.53 billion, principally through lenders receiving equity in the reorganised group in exchange for the release of their claims.

The deal will also raise US$800 million through a fully backstopped equity offering to all lenders and a direct equity offering to specific lenders as well as providing US$1.46 billion in new debt financing to the Cineworld Group when it emerges from Chapter 11.

The proceeds of the rights offering and exit facility will be used to repay in full the US$1.94 billion debtor-in-possession financing facility entered into by the group Chapter 11 companies, and fund future business operations.

“The proposed restructuring does not provide for any recovery for holders of Cineworld’s existing equity interests,” the statement said adding that the agreement is subject to the “execution of definitive documentation and certain other conditions”.

Cineworld chief executive officer Mooky Greidinger said: “This agreement with our lenders represents a ‘vote-of-confidence’ in our business and significantly advances Cineworld towards achieving its long-term strategy in a changing entertainment environment.

“With a growing slate of blockbusters and audiences returning to cinemas in increasing numbers, Cineworld is poised to continue offering moviegoers the most immersive cinema experiences and maintain its position as the ‘Best Place to Watch a Movie’.”

Cineworld also updated on a potential sale of all or part of the company. In February it reported “multiple indicative bids” for all or some of its assets and “some strategic interest” in the whole business. However, Cineworld now says that “absent an all-cash bid significantly in excess of the value established under the proposed restructuring”, it will no longer seek a buyer for its businesses in the US, the UK and Ireland, but will “continue to consider the proposals that were received in respect of its ‘rest of the world’ business.”

 

UAE Central Bank revokes licence of Russia's MTS Bank as sanctions tighten

The Central Bank of the United Arab Emirates (UAE) has cancelled the licence of Russia’s MTS Bank Abu Dhabi citing “sanctions risk”, as the West intensifies sanctions on Moscow following its invasion of Ukraine.

According to a March 31 press release the UAE Central Bank plans to close the Russian bank’s operations within six months from the date of the decision. The MTS branch will be barred from opening new accounts and conducting transactions, except to clear prior obligations during that time. 

“This decision comes after considering the available options regarding the new status of the MTS Bank and taking into account the sanctions risks associated with the bank after the designation,” stated the release. This development comes after increased pressure from the United States to put a halt to Russia trade ties. 

The US and the UK extended Western-imposed sanctions to the Russian MTS in February this year, which left the UAE Central Bank considering its options with the bank it licensed to last year.

Earlier that month, the US made its position clear during a regional tour. On a trip to the UAE, Brian Nelson, Under-Secretary for Terrorism and Financial Intelligence at the US Treasury, told UAE officials that their deepening financial ties with Moscow were blocking its efforts to isolate Russia, according to Bloomberg sources. 

Gulf Cooperation Council (GCC) countries, including the UAE, took a neutral stance amid Western sanctions placed on Russia for its war on Ukraine following the February 2022 invasion. The region enjoyed both economic and political opportunities as a result and welcomed affluent Russians.

It allowed the UAE and Saudi Arabia to take on the role of negotiator between the US and Russia for the exchange of two prisoners in December, according to state news agency WAM. 

The UAE has also had an ongoing reciprocal visa-free travel agreement with Russia since February 2019, which allows valid passport holders who have no intention to work or study in the UAE or Russia the right to stay in each country for a period of 90 days visa-free.

Izzat Dajani, CEO of IMCapital Partners, an investment management and corporate advisory company based in Dubai, said last December that the UAE’s policies have helped strengthen the country’s real estate market and other industries with foreign direct investment.

“The Ukraine and Russia war was very beneficial to the real estate market here. People have pointed to the UAE as a safe haven, a place where they can be welcomed,” he commented.

 

Credit Agricole boosts China investment banking business

Credit Agricole, France's second-biggest listed bank, has become the latest foreign lender to boost its China investment banking operations with the launch of a new unit.

Credit Agricole (Beijing) Advisory Services focuses on cross-border merger and acquisition, encompassing purchases, disposals and capital raising, said a statement issued by the bank. The unit began operations on March 10 and is overseen by Huai Yang as head of the operation, it added.

The “new strategic set-up will strengthen the bank's capabilities to connect local and international clients to investment opportunities, both inbound and outbound, presented by the world's second-largest economy,” said Jean-François Deroche, the bank's senior regional officer for Asia-Pacific.

Previously, the bank served its Chinese advisory clients from its offshore base.

Several global banks are accelerating their expansion in China with the government granting a handful of major licences since earlier this year. Standard Chartered won approval to set up a new securities brokerage unit in January, and JP Morgan and Morgan Stanley were permitted to take full ownership in their fund units, in January and February respectively.

 

Tranglo launches instant SEPA payout to Europe

Tranglo, the Singapore-based international cross-border payment hub has announced the launch of instant SEPA payments to Europe.

A company release noted that It marks the company's first large-scale expansion in that region and comes amid an influx of cross-border funds in recent years. SEPA facilitates over 43 billion transactions annually, with cross-border payments growing rapidly in the past 10 years. However, cross-border SEPA credit transfers and direct debits (SCTs/SDDs) accounted only for 3.5% and 4.5% of such transactions in the region, respectively.

Tranglo expects cross-border transactions to SEPA countries to increase significantly in the coming months, especially among the increasing number of European businesses and consumers abroad looking for real-time payments.

At launch, supported SEPA payout countries are the United Kingdom, Belgium, Croatia, Finland, Germany, Greece, Hungary, the Netherlands, Portugal, Slovakia, Spain and Sweden, with more to follow.

Tranglo Group CEO Jacky Lee said: “We decided to launch this offering to cater to the increasing demand for instant cross-border payments. Our business partners will be delighted to know that Tranglo Connect is integrated seamlessly into SEPA, offering more value per transaction in terms of speed and coverage.”

Tranglo Connect is the company’s proprietary cross-border payments solution. The new instant SEPA payout is available 24/7 and supports individual and business senders and beneficiaries. All transacting bank accounts must be identified by an IBAN.

 

Volante Technologies and HCLTech partner on cloud payments modernisation

Cloud payments and financial messaging solutions specialist Volante Technologies has formed a strategic alliance with India’s multinational tech company HCLTech. Together, the companies “will drive payments modernisation to help financial institutions keep up with the fast-paced digital disruption taking place across the industry.”

HCLTech will combine its digital and engineering services capabilities with Volante’s cloud-native payments solutions and low-code financial platform. This will enable financial institutions to quickly deploy solutions for instant payments, real-time gross settlement (RTGS) payments, and multiple low and high-value domestic and international payment methods. The firms will also co-innovate to make their shared vision of payments available to a broader range of customers and financial services organizations.

Volante and HCLTech will jointly develop centres of excellence in India and Romania to support the configuration, customisation, integration, and implementation of Volante’s ecosystem of business services for payments modernisation. Both organisations are committed to ramping up this multi-regional team of specialists over the next three years. 

“Our partnership with Volante will help our clients operate in a stable, scalable and flexible payment ecosystem and develop faster time-to-market capabilities,” said Srinivasan Seshadri, Chief Growth Officer, and Global Head of Financial Services, HCLTech.

“HCLTech’s energy and collaborative style stood out immediately as we began this partnership,” said Jim Chow, Vice President, Partnerships and Business Development, Volante Technologies. “They have been an invaluable partner for Volante on the implementation and product side. Together with HCLTech, we will scale our ability to help banks modernise and drive innovative payments solutions.” 

The two companies add that they are currently “working on multiple implementation engagements with some of the largest banks in the world.”

Japanese banks provide US$300 million for Vietnam's renewable energy

Four Japanese banks will co-finance a total of US$300 million in credit lines to power producers using renewable energy in Vietnam to help the growing Southeast Asian country decarbonise.

The Japan Bank for International Cooperation (JBIC), Mizuho Bank, Joyo Bank, and Shiga Bank will provide the funds through Joint Stock Commercial Bank for Foreign Trade of Vietnam, aka Vietcombank, the nation's major bank.

Vietcombank will in turn provide subleasing loans, with most of the capital going to local businesses. By indirectly utilising Vietcombank's credit information, the Japanese banks anticipate that high-risk loans can be promptly issued.

The country has set a goal of achieving net-zero carbon emissions by 2050. As electricity consumption rapidly increases amid continued economic growth, demand is growing for alternative power sources to replace coal-fired power generation, a means of energy production which accounts for approximately 50% of total power generation. Expanding the introduction of renewable energy is key to reaching the target.

In January, JBIC issued a joint statement related to the Vietnam Climate Finance Framework, which aims to promote Vietnamese decarbonisation in partnership with the United States and Australian government financial institutions and others. The co-financing deal by the four Japanese banks represents JBIC's first project under this framework.

 

Statrys offers solution for Hong Kong SMEs’ cross-border payments

Digital payment services platform Statrys has launched a cross-border payment solution for small and medium- sized enterprises (SMEs) in Hong Kong.

The payment system, which allows local payouts in multiple currencies such as the US dollar (USD), Australian dollar (AUD), Indian rupee (INR), Thai baht (THB) and Vietnam’s dong (VND), is now available in markets for each currency.

The Local Payment Solution (LPS) allows businesses to make payments locally in the currency of the geographical location, avoiding the extra cost of currency conversion and enjoying competitive exchange rates.

Additionally, the LPS enables businesses to promptly execute international payments to their suppliers and vendors, eliminating the need for long wait times and expensive intermediary fees.

“By offering our Local Payment Solution, we're empowering small- and medium-sized enterprises to compete more effectively on a global scale,” said Statrys’ founder, Bertrand Théaud. “With the ability to make cross-border payments quickly, easily, and affordably, businesses can now pay their suppliers and vendors with confidence and gain a competitive edge in the market.”