News / KOBC sells $600m bonds as Seoul kickstarts box ship building programme

29/04/2024

Korea Ocean Business Corp (KOBC) has issued $600m of bonds to finance the state’s ambition to increase the domestic container shipping fleet to 2m teu by 2030.

Sold to local and overseas investors on Thursday, the issue was of three- and five-year maturity fixed-rate bonds, with each tranche worth $300m. Compared with US Treasury bonds of the same maturity, the KOBC bonds offer an interest rate 60 basis points higher for the three-year bonds, and 70 basis points higher for the five-year bonds.

Initially, KOBC proposed interest rates that were, respectively, 95 and 105 basis points higher than similar US Treasury bonds. However, strong demand caused KOBC to adjust the interest rates downwards. South Korean media reports estimate the bonds were oversubscribed by $3.9m.

This month, President Yoon Suk-yeol said the state would help boost the fleets of flagship carrier HMM and other South Korean container lines to bolster their competitiveness, a move widely seen as a response to Hapag-Lloyd’s announced departure from THE Alliance (of which HMM is part) next February.

On 15 April, HMM announced plans to increase its boxship fleet to 1.5m teu, by 2030, up from 1.2m teu by 2026. The Ministry of Oceans and Fisheries then disclosed that other South Korean container lines would grow their combined fleet to 500,000 teu by 2030, from the current 400,000 teu.

To achieve this, the state will invest approximately $4.7bn and it is expected that besides KOBC’s recently issued bonds, the investments will involve KOBC or Korea Development Bank commissioning newbuildings as joint investors with the shipping companies.

After issuing foreign currency-denominated bonds for the first time last year, KOBC raised its international visibility by issuing higher-value bonds this year, while also establishing itself as a frequent issuer in the global bond market.

KOBC said that despite the recent increase in market uncertainties, such as geopolitical risks from the Middle East and the US Federal Reserve’s procrastination in cutting interest rates, it is attracting attention by securing new investors from the Middle East, Central and South America, and attracting blue-chip investors such as central banks and pension funds from each country.

CEO Kim Yang-soo said: “We’ll respond to government policies by securing eco-friendly fleets for national shipping companies and expanding investment in ports and logistics facilities.”