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Banks mull over private offering of bonds in fresh attempt to raise capital

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A row of ATM machines belonging to banks are lined up in Seoul in this file photo. Korea Times file
A row of ATM machines belonging to banks are lined up in Seoul in this file photo. Korea Times file

By Yi Whan-woo

Banks are considering issuing bonds that will be privately offered to other lenders, in a fresh attempt to raise money, as the financial authorities are pressing them to refrain from issuing bonds that are publicly put up for sale on the market, according to multiple lenders, Monday.

The private offering of bonds has never taken place in the banking industry before, while the public offering of bonds has been a widely practiced way to generate capital, as banks' bonds are highly creditworthy and therefore popular among investors.

Recently, the public offering of bonds is not being encouraged as it can worsen the liquidity shortage suffered by commercial businesses in the bond and short-term money markets.

The debt market has been a major way for commercial firms ― whose bonds tend to have lower credit ratings than banks' bonds ― to raise capital.

But investor sentiment has weakened toward corporate bonds and commercial papers in the wake of the default on debt payments concerning the Legoland project in October.

All four major banks ― KB Kookmin, Shinhan, Hana and Woori ― have not issued bonds on the open markets since the Legoland crisis at the end of October.

As an alternative to the public offering of bonds, the banks have sought to raise capital by offering high deposit rates in tandem with steep hikes in their benchmark interest rates.

The financial authorities then pressed them not to increase their deposit rates sharply in order to prevent cash outflows from the troubled debt market.

"Under the circumstances, preparatory talks are underway among banks to sell and buy exclusively amongst ourselves, not to outside parties," a KB Kookmin Bank public relations employee told The Korea Times.

He said that the bank's board committee revised an investment policy, Friday, newly to include the private offering of bonds.

He did not give further details, such as the bond amount and time of issuance.

Sources familiar with the matter speculated that KB Kookmin Bank will sell the envisioned bonds to Shinhan Bank, which in turn, will sell its bonds to KB.

"KB may issue a small amount of bonds to see how many bonds other banks are willing to buy," a source said.

A Woori Bank public relations employee said the company is in the "early stage of discussions over whether to issue bonds privately for banks."

Meanwhile, sources said that the Financial Services Commission (FSC) finds the private offering of banks' bonds optimistic.

They added that the FSC may convene a meeting this week jointly with the banks to see if the private offering can be allowed.

Yi Whan-woo

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