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At the end of January, the bond market for specialized credit financial businesses in Korea experienced a stir-up after the news came out that Hyundai Capital successfully issued green bonds worth 200 million Swiss francs (CHF) in the Swiss bond market. Hyundai Capital is one of the major issuers in Korea raising some 1 trillion Korean won every year in overseas bonds. The recent raise of funds caught the attention of market stakeholders as Hyundai Capital, which has been largely focused on the stable dollar market, has changed its course to the Swiss bond market so as to reflect the volatilities in the global capital markets, demonstrating the finance provider’s ‘quick decision making and ability to execute’. Hyundai Capital successfully issued the bonds at 100bp above the CHF Mid-Swap, which is around 10bp lower than the dollar funding rate.
Hyundai Card and Hyundai Capital’s track record in the foreign bond market has been quite remarkable. Some even say that the history of raising funds overseas by Korean specialized credit financial businesses is being written by the two companies. In 2005, Hyundai Capital became the first in the domestic industry to issue corporate bonds in Japan (Samurai bonds) leveraging its own credit. In November of the same year, it successfully issued bonds denominated in dollars; the first non-bank financial institution to do so. It also entered the Malaysian bond market in 2008, paving the way as a regular issuer of bonds. In the years that followed, the company achieved to enter the bond markets in major countries including Switzerland(2010), Hong Kong(2012) and Australia(2013) etc. Furthermore, overseas entities of Hyundai Capital are taking the initiative to directly issue new bonds as seen in past examples of Hyundai Capital America (HCA) issuing Arirang bonds in 2009, new ABS issues in Europe by Hyundai Capital United Kingdom (HCUK) in 2014 and corporate bond issues in China by Beijing Hyundai Auto Finance (BHAF) in 2017.Overseas capital market is the ocean that paves the way forward for ‘the whale in the pond’
What is the reason behind Hyundai Card and Hyundai Capital’s emphasis on and efforts toward overseas financing? As of April 2019, the share of cross border financing accounts for 15% and 23% for Hyundai Card and Hyundai Capital respectively. Hence some wonder why these two companies have shown interest in overseas markets in the first place, when it only accounts for less than 30% of the total funding volume.
Experts say the importance of overseas funding arises from the volume and instability of the domestic funding markets. Monthly public issuances of corporate bonds in Korea average at KRW 8 trillion, a disproportionately small size in relation to bond markets denominated in dollar, a vehicle currency, Euro or the yen. That’s why domestic markets are much more vulnerable to external factors such as exchange rates, global rates; as well as internal ones including domestic demand, recession and a series of defaults. Therefore it is would be an obvious choice for businesses that issue bonds exceeding a certain volume, to hedge internal and external risks and ensure stable financing by entering overseas markets to enhance market responsiveness. Hyundai Card and Hyundai Capital, which hold the majority of the bonds issued by domestic credit specialist companies, could be likened to a ‘whale in a pond’, considering the size of the domestic market; naturally making them turn their attention to the global bond markets.
Another factor is that although overseas issuance may be smaller in size vis-à-vis domestic offerings, it indirectly helps the companies’ reputation and domestic issuances. Off-shore bond issuances require a greater level of scrutiny as overseas investors need to be managed in addition to constant and in-depth monitoring of capital markets worldwide. However, as the saying goes, ‘Patience is bitter, but its fruit is sweet’; industry officials admit that the issuer which has good reputation in the intensely competitive overseas capital markets, is bound to be well-received in Korea as well.
What makes Hyundai Card and Hyundai Capital so successful in overseas financing markets?
Industry insiders say the largest competitive edge of Hyundai Card and Capital is ‘rapid decision making and power of execution’. A new paradigm was ushered in the global financial markets after the fall of Lehman Brothers in September of 2008, which led to a widespread volatility dominating the market unlike before. Against this backdrop, Hyundai Card and Hyundai Capital determines the best timing, markets and products to pursue, through constant monitoring of trends of major capital markets around the world, investor behaviors, performance of past issuances etc., thereby rapidly taking action through quick execution. Investors comment that it’s very rare for large issuers such as Hyundai Card and Capital to exhibit such rapid decision making and execution.
Continuous networking with global investors is another relevant factor. Since 2005, Hyundai Card and Hyundai Capital have hosted approximately fifty IR events overseas. Regular roadshows, global forums and other IR events targeting investors worldwide are hosted 2~3 times annually, which makes them by far the most active institution in Korea engaging in overseas financing. Such networking with the investors laid the foundation for successful funding activities, and over the years the diversity of institutions investing in Hyundai Capital’s overseas financing products grew, exceeding 1,000 institutions until now. Once they invested, reinvestment and long term investment followed suit, thereby creating a relationship based on trust as well as a stable investor base.
Last but not least, Hyundai Card and Hyundai Capital’s world class finance policy played its role. In the wake of the credit card crisis in 2003 and the Lehman crisis years later, they upgraded their finance policies recognizing the importance of liquidity management. Following the Eurozone financial crisis in 2011, they further tightened liquidity which resulted in very stringent finance policies. Liquidity standards have been increased to accommodate 6 months’ refinancing, and the borrowing portfolio is being stably managed through diversification of funding products and currencies. They are also managing interest rate and liquidity risks by maintaining a more conservative leverage level compared to domestic supervisory regulations, and engaging ALM (Asset Liability Management) and other systematic finance policies to enhance investors’ trust.
2014 Hyundai Capital Auto ABS: Long-term financing Best Practice by 2014 G20 Finance Ministers’ Meeting
2016 Hyundai Capital USD 500 MM Green Bond: “Best Green Bond Korea” by The Asset
2018 Hyundai Capital CHF300 MM Swiss Bond: “Best Corporate Bond Korea” by The Asset
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