Stocksak: South Korea’s Legoland bankruptcy points to greater bond market stress


© Stocksak. FILE PHOTO – The logo of Lego can be seen at the Legoland Korea amusement park in Chuncheon (South Korea), October 24, 2022. Yonhap via REUTERS


By Cynthia Kim

SEOUL (Stocksak). A South Korean developer has missed a bond payment and caused panic in the country’s money market. This raises concerns about a credit crunch that could be similar to the one that hit China’s property markets and economy.

The central bank of South Korea and the financial regulators rushed this week to contain the risk of wider financial collapse as short-term yields spiked, threatening some major institutions’ ability meet their near-term funding requirements.

The money market yields have soared after Gangwon Jungdo Development Corp. (the developer of Legoland Korea east of Seoul) missed bond payments in the amount of 205 billion won ($144m) due Sept. 29.

Official efforts to calm markets have prevented more financial market turmoil this week. However, money markets confidence is fragile with Friday’s yield on 91-day Commercial Paper at 4.58%. This is up from 3.25% one month earlier.

Cho Dou-hyung, a credit analyst at Shinhan BNP Paribas Asset Management (OTC:), said that the Legoland case was similar to getting COVID while you are barely breathing in an intensive care ward. “It seems like the credit markets are receiving enough policy support right now, but the panic will not go away unless Fed and Bank of Korea offer some assurance about possible slowdowns to policy tightening.”

The Gangwon Jungdo Development missed a debt payment. This raises questions about loans that were related to hundreds of thousand of other projects in Asia’s fourth-largest economic region.

Investors were also shocked by the fact that even state-backed developers are at risk of defaulting due to rising interest rates. Gangwon Province holds 44% of the company. Gangwon Province was responsible for the A1 rating and guaranteeing the commercial paper (ABCP).

Cho stated, “Right now there is just not enough faith that these kinds of soured loans will not happen again with rates still going higher.”

Legoland is a resort on the island Chuncheon with 40 rides and an 154-room hotel. It announced Thursday that it will be closing down for three month starting January 2023, “for maintenance.”


Even after Sunday’s announcement by the government that it would purchase more commercial debt from financial institution, some top-tier state-run companies have not been able to get financing.

The AAA rating for state-run Korea Electric Power (NYSE) Corp. (KEPCO) was not enough to attract enough bidders on Tuesday for its three-year corporate bonds. Korea Gas Corp., which is also rated AAA, did not sell a two year corporate bond.

Incheon Housing and City Development Corp., both rated AAA+, failed to sell bonds Monday.

Gangwon province, the state guarantor for developer’s debt, is required to repay the loan. It has stated that it will pay the entire 205 million won by December 15.

CreditSights, however, sees risk further down the value-chain.

CreditSights reported that while financial groups have little exposure to troubled ABCP or are likely to be so, they could feel the effects of tougher domestic funding by having lower margins for credit card businesses and higher demand for corporate loans.

BOK analysis has shown that South Korea’s savings and commercial banks were exposed to 112.2 trillion won worth of outstanding project financing loans for the real-estate industry as of June 2016. This is more than twice what was in 2016.

The credit market is facing a difficult picture due to volatile global financial markets. In addition, the Bank of Korea has set interest rates to rise further amid crippling inflation. This is despite slowing economic growth.

“We have asked major institution investors to refrain from excessively selling bonds or reducing any planned (bond) purchase given the financial markets situation and take an mid-to-long-term approach in their investment decisions,” said the Financial Services Commission in a statement released Friday.

($1 = 1,418.3800 won)

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