Hong Kong: South Korean US dollar-denominated bonds will outperform others issued in Asia after the nation's credit rating was upgraded by Moody's Investors Service, according to Nomura Holdings, part of Nomura Group.
"South Korean credits in general should benefit from the sovereign upgrade and positive sentiment from it," Yang-Myung Hong, a Hong Kong-based credit analyst at Nomura, said by telephone yesterday.
Moody's upgraded the country's ratings to A1 from A2 yesterday, citing accelerating economic growth. The change gives South Korea its highest-ever ranking from Moody's and puts the country on a par with China and Slovakia.
The cost of credit-default swaps protecting South Korean government bonds fell to 72.8 basis points, the lowest since May 2008, from a New York close of 74.4 yesterday, according to CMA DataVision prices. A basis point is 0.01 percentage point.
Moody's also raised the ratings on state-run companies such as Korea Water Resources, Korea Electric Power and Korea Expressway and 10 financial institutions including Export-Import Bank of Korea, Industrial Bank of Korea, Hana Bank, Woori Bank and Korea Finance.
The extra yield investors demand to hold Korea Electric Power's $500 million of five-year notes rather than Treasuries fell 2 basis points to 140 yesterday, the lowest since the 5.5 per cent bonds started trading July 14, according Royal Bank of Scotland Group Plc prices on Bloomberg.
Investors don't appear to "give much credit for the implicit sovereign support of quasi-sovereigns" in South Korea, resulting in wider spreads than comparable US companies, Morgan Stanley credit strategist Viktor Hjort said yesterday.
The extra yield over US Treasuries investors demand to own Korea National Oil's 2014 bonds is 144 basis points, RBS prices show. By comparison, Diamond Offshore Drilling's 2014 bonds are trading at a spread of 89 basis points, KeyBanc Capital Markets prices show.
