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Investors scramble to sell bonds issued by HDC Group's affiliates Risks sparked by fatal accidents in Gwangju

Translated by Kim So-in 공개 2022-01-20 08:12:51

이 기사는 2022년 01월 20일 08:08 더벨 유료페이지에 표출된 기사입니다.

Major investors in the domestic corporate bond market are scrambling to sell bonds issued by HDC Group’s affiliates due to risks sparked by fatal accidents at HDC Hyundai Development Company’s construction sites in Gwangju.

Major investors have put a large amount of bonds issued by HDC Group’s affiliates on the domestic corporate bond market, industry sources said on Tuesday. Those bonds were sold by HDC Holdings, HDC Hyundai Development Company, and HDC Hyundai Engineering Plastics, worth a total of 600 billion won ($500 million)-700 billion won. The bonds have between 6 months and 4.5 years until maturity.

Investors are trying to offload their bonds as the group's crown-jewel apartment construction business has come under fire after two building collapse accidents in Gwangju, especially after the one occurred on January 11.

Yet, the bonds haven’t been traded as decision makers of major institutions reportedly ordered not to purchase HDC Group's bonds. As a result, there hasn’t been much difference in the bonds’ average interest rate rated by domestic credit rating agencies.

“Sell orders are being place at once, but there is no significant movement in interest rates due to the lack of buyers, including asset managers, and meaningful transactions worth more than 5 billion won,” said an official at one asset management firm in Seoul.

“HDC’s bond will likely be considered to be highly volatile in the corporate bond market following a cancellation of its plan to acquire Asiana Airlines in 2020 and building collapse incidents.”

Risks sparked by the fatal accidents are expected to have a big impact on the group’s bond issuance and roll over strategy. The group may face serious obstacles in managing funds, including refinancing its maturing bonds, if it continues to fail to find buyers.

“The HDC Group has issued quite a large amount of asset-backed securities using various assets as underlying assets alongside corporate bonds,” said a market insider. “In February alone, asset-backed short-term bonds worth about 560 billion won will reach maturity.”

“There also is a possibility of a rating downgrade as a domestic credit rating agency said it will closely monitor the possible impact on the company’s performance, brand reputation, and competitiveness,” the source added. “In the worst case scenario, the company may not be able to raise funds in the market for a long time.”

Some market experts said the latest accident may damage the group’s reputation in terms of environmental, social, and governance (ESG) management. The safety management of construction sites is one of the most significant factors that measures ESG management of a construction company.

Such risk is expected to have a negative impact on HDC Hyundai Engineering Plastics’ plan to raise between 30 billion and 40 billion won in a ESG bond issuance at the end of this month.

“It became unclear whether the deal may complete given HDC Hyundai Engineering Plastics’ credit rating of A- and latest risks,” said a securities industry source. (Reporting by Chul Kang)
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