With the announcement of the government's mid- to long-term financial management plan for public institutions, Korea Land and Housing Corporation (LH) has emerged as a key player that will determine the supply and demand in the future public bond market.
The financial investment industry is concerned about the phenomenon of supply and demand buildup, where large-scale public bond issuance sucks up market funds and makes it difficult for other companies to raise funds, as LH's debt has rapidly increased due to the expansion of policy projects such as the government's third new city project.
Public bonds refer to bonds issued by public corporations under the government to raise funds. In the past, the ‘dinosaur’ in the public bond market was Korea Electric Power Corporation. KEPCO's debt ratio is expected to decline and its financial structure is expected to improve due to rate increases and the provision of funds for power grid construction following discussions with Samsung Electronics [005930] and SK Hynix [000660] on prepayment of electricity bills.
On the other hand, LH's borrowings are expected to increase sharply in the process of implementing government policies such as public housing supply and core infrastructure investment. In fact, when LH is excluded from this financial management plan, the debt ratios of the remaining public institutions appear to actually decline, and in fact, LH appears to be alone in leading the increase in national public institution debt. Looking at specific figures, LH's debt forecast will rapidly increase from 173.7 trillion won in 2025 and 197.5 trillion won in 2026 to 372.8 trillion won in 2030.
In particular, the securities industry cites the 'time lag between disbursement and recovery of funds' as the reason for the rapid increase in LH's debt. This is because, while the government's housing supply measures have accelerated the start of construction in major districts such as the 3rd Shindogi, and full-scale investment, recovery of funds is being delayed due to high interest rates and the prolonged slump in the real estate market.
Joo-hee Cha, a researcher at Shinhan Investment & Securities, said on the 8th, "Assuming an increase in debt of 40 trillion won every year, net financing of LH bonds of around 20 trillion won is possible." He added, "We need to pay attention to the weakness of LH-centered public bonds and the resulting supply and demand structure in the bond market overall."
The short-term issuance burden, which will become visible starting next year, is also significant.
Han Si-hwa, a researcher at Hanwha Investment & Securities, said, “LH is expected to determine the supply and demand of public bonds rather than KEPCO, which was the existing public bond supplier,” and analyzed, “LH’s debt will increase by 175.3 trillion won over the next four years, accounting for about 80% of the increase in the debt of 37 public institutions.”
Park Gyeong-min, a researcher at DB Financial Investment, predicted, "This year's net issuance of LH public bonds is expected to be around 11 trillion won per year, and considering that next year's debt will increase by 39 trillion won compared to this year, the net issuance next year will expand to around 18 trillion won, adding to the burden of public bond supply and demand."
In particular, the market is concerned that while the Bank of Korea's policy of raising the base interest rate continues, LH's large-scale public bond volume, which is expected to pour in from next year, may act as a factor in raising interest rates in the primary market.
