Hanyang Securities is facing higher interest rates on its commercial paper (CP) and electronic short-term bonds compared to securities firms with similar credit ratings, according to market data from July 28. On that date, the firm issued 30 billion won in 3-month electronic short-term bonds at a 4.620% rate, notably higher than the 4.150% rate Cape Investment Securities achieved on July 27 for the same maturity despite holding a lower A2- credit rating. Industry observers attribute the rate premium to investor caution stemming from Hanyang Securities' exposure to Joongang Group, which entered corporate rehabilitation proceedings. The rate differential has drawn particular attention given that short-term funding markets serve as a primary capital source for securities firms.
Hanyang Securities Records Higher Rates Than Lower-Rated Peers
According to Yonhap Infomax's 'CP/Short-term Bond Distribution - Individual Transaction' data (screen number 4740), Hanyang Securities (A2 rating) issued 30 billion won in 3-month electronic short-term bonds on July 28. The issuance was absorbed by the market at a 4.620% interest rate on the same day.
This rate stands higher than recent issuances by securities firms with similar credit ratings. On July 27, Cape Investment Securities (A2-) recorded a 4.150% rate for CP with the same maturity. On the same day, Daol Investment Securities (A2-) showed rates of 4.450-4.650% for 6-9 month CP issuances with longer maturities than 3 months. Securities firms with credit ratings one notch lower than Hanyang Securities are securing funding at better rates.
Company Issued Highest Securities Firm Rate This Month on July 13
Hanyang Securities previously recorded the highest rate among securities firm short-term issuances (excluding 364-day notes) issued this month. The firm's 4-month CP issued on July 13 was absorbed by the market at approximately 4.830% on the issuance date.
Following the Bank of Korea's Monetary Policy Committee meeting in July, the short-term funding market stabilized somewhat and issuance rates declined slightly. However, the company continues to bear higher funding costs compared to securities firms with similar credit ratings.
Market Attributes Premium to Joongang Group Headline Risk
Industry participants interpret the rate premium as reflecting headline risk related to Joongang Group exposure. Hanyang Securities became subject to a Financial Supervisory Service on-site inspection regarding allegations of mis-selling JTBC corporate bonds.
"While Hanyang Securities stated there are no issues as collateral is set against Joongang Group-related exposure, investor sentiment inevitably contracts when risks emerge," said a bond dealer at a securities firm. "Regardless of actual problems, an avoidance atmosphere has formed due to headline risk."
Hanyang Securities was identified as having relatively large exposure to Joongang Group relative to total assets and capital following the group's rehabilitation proceedings last month, heightening concerns. NICE Credit Rating and Korea Ratings subsequently examined potential negative factors that related fallout could have on Hanyang Securities' creditworthiness.
The company immediately responded by projecting it would recover 87% of Joongang Group exposure within the year, but anxiety has not easily dissipated. Some analysts suggest Hanyang Securities' earnings base, which has not benefited from the stock market boom, is also having an impact.
"Recent securities firm performance improvements stem from retail business results, but small and mid-sized IB-focused firms have weak related foundations and poor performance," said an IB industry official. "Hanyang Securities has had many negative factors over several years beyond Joongang Group, and these aspects work in combination to create an atmosphere where investors are reluctant to invest."
Hanyang Securities Maintains Liquidity Coverage Above Outstanding Issuance
Hanyang Securities' ability to respond to short-term liquidity is expected to become increasingly important. "Given that we are in a rate-hiking period, heightened vigilance appears necessary regarding the phenomenon of investment avoidance in short-term issuance markets," noted a bond dealer at another securities firm.
As of the previous trading day, Hanyang Securities' outstanding CP and electronic short-term bond balance stood at approximately 776.5 billion won. However, the company's cash and deposits at the end of Q1 (902.3 billion won) exceeded this amount.
A Hanyang Securities official stated, "Short-term funding rates can differ based on various factors including market supply and demand at the time of issuance and operational circumstances of individual investors. We are flexibly operating funding timing and scale considering market conditions."
FAQ
Why is Hanyang Securities paying higher CP rates than securities firms with lower credit ratings?
Market participants attribute the rate premium to investor caution stemming from Hanyang Securities' exposure to Joongang Group, which entered corporate rehabilitation proceedings. The company became subject to a Financial Supervisory Service on-site inspection regarding JTBC bond mis-selling allegations, creating headline risk that has formed an avoidance atmosphere among investors regardless of actual problems.
What is Hanyang Securities' current liquidity position relative to its short-term debt?
As of the previous trading day, Hanyang Securities had approximately 776.5 billion won in outstanding CP and electronic short-term bonds. The company's cash and deposits at the end of Q1 totaled 902.3 billion won, exceeding the outstanding issuance balance. A company official stated they are flexibly operating funding timing and scale considering market conditions.
