South Korea credit market resilient to builder's debt woes, so far (updated)

SEOUL BROADCASTING SYSTEM

10/01/2024 13:32

(Updates Jan. 9 story to specify company that missed bond
payment in paragraph 4)
    By Jihoon Lee and Cynthia Kim
       SEOUL, Jan 9 (Reuters) - South Korea's credit market is
showing signs of stability less than two weeks after officials
pledged to expand a $66 billion program if needed to limit the
fallout from a builder's debt woes, analysts said, but added
that it was still early days. 
    An announcement by Taeyoung Engineering & Construction
 009410.KS , the country's 16th largest builder, on Dec. 28 to
reschedule its debt has fuelled concerns about a credit crunch
in money markets, as many real estate projects rely on the
short-term debt market to finance construction projects.
    On Tuesday, the yield on 91-day commercial paper  KPCP=KQ 
was quoted at 4.24%, down from a 10-month high of 4.31% in early
December. 
    It compares with a 14-year high of 5.54% in late 2022, when
a missed bond payment by Gangwong-Jungdo Development Corp, a
local government-backed developer of theme park Legoland, caused
a credit crunch in financial markets. 
    "We cautiously do not see systematic risks from the event as
we believe the government and authorities are likely to recycle
policy tools from 4Q22, if necessary," Citi economists Jiuk Choi
and Jin-wook Kim said in a report. 
    "Market impact has been limited as financial authorities are
proactively announcing policy support and expanding when
needed," said Choi Seong-jong, a credit market analyst at NH
Investment Securities. 
    Authorities have been quick to limit any spillover from
Taeyoung's debt troubles, and have urged the builder to fulfil
creditors' demand to inject more liquidity into the company by
selling its assets, including its stakes in local broadcaster
SBS  034120.KS .
    Finance minister Choi Sang-mok has vowed multiple times to
"expand market stabilisation measures sufficiently as needed,"
although he has ruled out injecting taxpayers' money to bail out
Taeyoung.
    Shares of Taeyoung dropped 37% in December, hitting their
lowest since early 2005, but have rebounded nearly 50% so far in
January.  
    South Korea's property market, a key sector driving growth
and affecting financial markets, has been sluggish since
mid-2022 as demand dampened due to the central bank's aggressive
rate hikes to tame inflation.
    "Policymakers are approaching the issue with targeted
measures, separating interest rate policy and liquidity support.
They might consider lowering interest rates if market jitters
worsen, but not pre-emptively," said Cho Yong-gu, a fixed-income
analyst at Shinyoung Securities.
    "There is still some worry about Taeyoung as the trouble is
still at the early stage and may pick up pace after general
elections in April," Cho said.  
($1 = 1,314.8200 won)

 (Reporting by Jihoon Lee and Cynthia Kim; Editing by
Muralikumar Anantharaman and Chizu Nomiyama)
 ((jihoon.lee@thomsonreuters.com;))