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Updated January 9th, 2024 at 14:21 IST

South Korea's credit market defies construction debt turmoil

Taeyoung's debt rescheduling worries ease as credit market stabilises with a 91-day paper yield at 4.24%, down from 4.31% in early December.

Reported by: Business Desk
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South Korea flag | Image:Pixabay
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Credit resilience prevails: South Korea's credit market is exhibiting resilience just under two weeks after officials vowed to extend a $66 billion programme, if necessary, to mitigate the impact of a construction company's debt challenges, according to analysts. Despite concerns arising from Taeyoung Engineering & Construction's announcement on December 28 about rescheduling its debt, there are indications of stability in the credit market. The 91-day commercial paper yield was at 4.24 per cent, down from a 10-month high of 4.31 per cent in early December.

Real estate credit concerns ease

Real estate projects heavily dependent on short-term debt markets for construction financing raised worries of a credit crunch following Taeyoung's debt rescheduling. However, the current market conditions seem to be recovering, with analysts noting the limited impact on the market and proactive policy support from financial authorities.

Citi economists Jiuk Choi and Jin-wook Kim stated in a report that they do not see systematic risks at this point, believing that the government and authorities would likely use policy tools as needed. Choi Seong-jong, a credit market analyst at NH Investment Securities, emphasised the restrained market impact, attributing it to the authorities' swift policy support.

Officials have acted promptly to contain any fallout from Taeyoung's debt issues, urging the company to inject more liquidity by selling assets, including its stakes in the local broadcaster SBS. Finance minister Choi Sang-mok has pledged to expand market stabilisation measures when necessary, ruling out the use of taxpayers' money for Taeyoung's bailout.

Taeyoung's January rebound

Despite Taeyoung's shares dropping 37 per cent in December, hitting their lowest since early 2005, they have rebounded nearly 50 per cent in January. The sluggishness in South Korea's property market since mid-2022, driven by the central bank's efforts to control inflation through aggressive rate hikes, has been a key factor affecting growth and financial markets.

Policymakers are adopting targeted measures, keeping interest rate policy and liquidity support separate. Cho Yong-gu, a fixed-income analyst at Shinyoung Securities, noted that while there may be concerns about Taeyoung's situation escalating after the general elections in April, policymakers might consider lowering interest rates if market uncertainties worsen.

(With Reuters Inputs)

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Published January 9th, 2024 at 14:21 IST

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