Despite the government‘s bond-buying initiative aimed at shoring up liquidity, South Korea’s corporate bond market is rattled by changes in credit outlooks that reflect lingering uncertainties on falling oil prices and the COVID-19 pandemic.

On Monday, Hanwha Solutions’ corporate bonds meant to raise 210 billion won were undersubscribed by institutional investors. Absent in the bidding was the vehicle dubbed the “bond market stabilization fund,” a state commitment of 20 trillion won. The sales only attracted 80 billion won in bids. It was the first undersubscription of corporate bonds in three weeks here.

Although Hanwha Solutions’ AA- graded three-year bonds were within the target range of the state-backed bond-buying fund, the news was foreseeable, analysts said, as Hanwha Solutions’ nonguaranteed bonds were abruptly imposed with a “negative” outlook by Korea Ratings and NICE Investors Service in April.

“The investing conditions of Hanwha Solutions’ corporate bonds have drastically changed over the past couple of months,” Kim Eun-ki, a fixed-income analyst at Samsung Securities, told The Korea Herald.

“Bond investors tend to be strongly refrained from investing in instruments that are tagged as ‘negative’ in their credit outlook.

An undersubscription in the corporate bond market puts a company raising debt under pressure in the later stage of bond issuance, as the bond yield might go up while the bond value falls. The money was meant to be used for operations and refinancing.

The absence of a state bond-buying fund, which can subscribe up to half of the bid, has to do with the offering’s failure in attracting enough buyers, but other asset managers would also have barely joined the bid due to the grim outlook, Kim added.

In contrast to Hanwha’s case, Lotte Chilsung Beverage managed to receive a 320 billion-won institutional bid in a plan to snap up 150 billion won through AA-rated bonds that are to mature in two or three years. Parts of Lotte Chilsung bond fundraising, 60 billion won, came from the state-driven bond-buying fund. Hyundai Auto Electronics took 143 billion won in orders in a plan to raise 50 billion won through A0 rated bonds. Kia Motors‘ 330 billion won bond sales on Tuesday was also oversubscribed.

“Returns on investment still count to the managers of the state-backed bond-buying fund,” said Lee Tae-hoon, a fixed income analyst at eBest Investment & Securities. “The managers are likely to have taken into account the industry outlook of the petrochemical sector that Hanwha Solutions is in.”

The bond market in Korea appears to be picking up the pieces in the second quarter of 2020. After the Kia Motors deal, three more companies -- Orion, Hotel Shilla and SK Energy -- are looking to carry out institutional investor bidding in plans to raise a combined 380 billion won this week.

Since March, the corporate bond market here has been facing heat from market fluctuation due to the virus.

In the wake of the novel coronavirus, three companies -- Hana Bank, Kiwoom Capital and Pospower -- were met with institutional undersubscription when issuing investment-grade bonds early in March.

According to data from the Korea Securities Depository, the Korea corporate bond market saw a 11.7 percent drop in issuance of corporate bonds on-year, to 15.9 trillion won.

By Son Ji-hyoung (consnow@heraldcorp.com)