By Anna J. Park
Amid ever-increasing liquidity in global markets, listed companies have been focusing on raising capital either by additional equity financing or corporate bond issuances, as they try to bolster their cash reserves to prepare for new opportunities after the COVID-19 pandemic.
Historically-low interest rates have also prompted investors to put their money into the capital market that offers better returns.
Such developments have triggered an unprecedented amount of money flowing into Korea's stock and corporate bond markets. Rosy outlooks on corporate performance among investors, buoyed by prospects of coronavirus vaccines have also played a part in fueling the frenzy.
Unprecedented boom in capital increase
As a result, raising additional capital by issuing new stocks ― which used to impact a company's stock price negatively, as new shares could weaken the corporate value held by original shareholders ― is now stoking share prices instead.
For instance, POSCO Chemical ― the steel conglomerate's affiliate that manufactures rechargeable battery materials ― saw an influx of a whopping 1.92 trillion won ($1.74 billion) in subscriptions for its new stock allotment open to general retail investors. The competition rate for the capital increase stood at 1,1316:1.
While about 27 percent of new shares will be added through the capital increase, the company's stock price has been soaring due to investor expectations for future investment. POSCO Chemical's stock price has risen by more than 60 percent since the company announced its plan to raise additional capital back in November.
"Retail investors have flocked to the shares, as the firm's business areas cover sustainable environment-related sectors as well as coinciding with the Fourth Industrial Revolution" ― artificial intelligence, robotics, 3D printing, genetic engineering and other cutting-edge technologies ― a market insider said.
"The company aims to create a virtuous cycle where the raised capital and investment leads to business expansion, profits and future growth," an official from POSCO Chemical said.
POSCO is not alone.
According to the Korea Exchange (KRX), total capital increases by listed companies more than doubled in 2020 compared to the previous year, despite the major economic shock of the coronavirus pandemic.
Last year, about 83 listed companies raised about 14.4 trillion won by issuing new stocks, a more than 100 percent jump from the previous year's 6.2 trillion won raised by 74 companies ― and more than 70 percent of this was in the second half of the year.
Doosan Heavy Industries & Construction, Doosan Fuel Cell and CS WIND all succeeded in raising 1.2 trillion won, 336 billion won and 350 billion won, respectively, through new shares at the end of last year. As the firms are planning to use the money either to pay off debt or increase facility investments overseas, investors are welcoming the firms' initiatives, interpreting them as a potential sign of future growth and expansion.
Korean Air is also seeking to raise 3.3 trillion won by early March this year to acquire debt-ridden Asiana Airlines. The nation's largest airliner raised the amount of capital increase from the originally planned 2.5 trillion won, due to recent stock price hikes. The airliner aims to issue 173.6 million new shares by early March.
Corporate bonds also popular among investors
Corporate bond markets have also become active recently, as companies are issuing debt to prepare themselves for future M&As amid uncertain market conditions due to the pandemic. Excessive liquidity that has been flowing into markets in search of good investments, is also being parked in corporate bonds for stable profit generation.
Lotte Corp. ― Lotte Group's holding company ― recently drew more than 1.2 trillion won in prospective investment for an issuance of 250 billion won in corporate bonds. As demand for the bonds reached a competition rate of 4.8:1, the highest rate ever for corporate bonds issued by the Lotte holding company, the conglomerate said it will expand the amount of bonds to 400 billion won.
Market insiders say the firm's top-notch credit rating as well as timely restructuring has earned investors' trust.
SK Hynix recently raked in about 2.74 trillion won ($2.5 billion) with its foreign currency bonds ― the largest amount ever raised through a corporate bond issuance among Korean companies ― as investors from both in and outside of Korea rushed to buy, given the semiconductor sector's global super-cycle period.
Other blue-chip companies such as LG Chem, S-OIL, and Hyundai Motor raised 900 billion won, 680 billion won, and 600 billion won, respectively, through issuing corporate bonds.
However, companies with low credit ratings are having a harder time raising capital. A total of 1.77 trillion won worth of corporate bonds issued by such companies have not been purchased this year, the highest level since 2015.