Kia Unit Plans Korea’s First Kimchi Bonds Since 2007 (Update3)
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By Seonjin Cha
Dec. 11 (Bloomberg) -- Kia Motors Corp.’s U.S. unit plans to raise $300 million from the first kimchi bond sale in more than two years as it seeks working capital for a new factory.
Kia Motors Manufacturing Georgia Inc.’s debt will be guaranteed by the South Korean parent company, spokeswoman Pamela Munoz said in a phone interview from Seoul today, declining to provide price information.
Kimchi bonds are foreign-currency notes sold in Korea by an overseas issuer. Kia’s sale would be the third after Bear Stearns Cos. opened the market in 2006 and SK Shipping Co.’s European unit raised $50 million in September 2007, according to data compiled by Bloomberg.
“For a little-known company like Kia’s U.S. unit it’d be easier to raise funds in the local market than in the U.S.,” said Ryu Seung Hwa, a credit analyst at Tong Yang Securities Inc. in Seoul. “It looks like a win-win deal as the debtor’s costs may be maintained at a certain level and investors could enjoy higher yield from exchanging currencies.”
Seoul-based Kia, South Korea’s second-biggest carmaker, began production of its Sorento sport-utility vehicle at a $1 billion West Point, Georgia factory last month. The plant, Kia’s first in the U.S., opened with initial annual capacity to make 130,000 units and aims to reach full capacity of 300,000 units a year by 2012, the company said.
U.S. Sales
Kia’s U.S. sales rose 7.8 percent to 279,015 vehicles in the year to Nov. 30, outpacing the 6.2 percent increase to 401,267 units at Hyundai Motor Co., the biggest Korean carmaker. Both companies bucked an industry-wide slump of 24 percent, helped by fuel-efficient small car models and as Japanese competitors Toyota Motor Corp. and Honda Motor Co. struggled with a stronger yen.
The won gained 8.2 percent against the dollar this year, becoming the second-best performer among 10 major Asian currencies tracked by Bloomberg, after declining 21 percent last year to become the worst performer in the group.
Asia’s fourth-biggest economy suffered from a lack of foreign currency amid the global credit crunch, prompting the central bank to guarantee as much as $100 billion of banks’ overseas debt and open a $30 billion currency swap line with the U.S. Federal Reserve. The swap agreement will run until Feb. 1 to ensure the “continuing stability of the foreign currency funding market and financial market in Korea,” the Bank of Korea said June 26.
Dollar Supply
“South Korea hasn’t had ample dollar supply so there hasn’t been much point in selling debt in this market,” said Choi Seok Won, head of fixed-income research at Samsung Securities Co. in Seoul. “For the overseas affiliates of Korean companies, kimchis may now be an option to raise funds since dollar liquidity has improved.”
Kia’s unit will sell three-year notes on Dec. 14 with help from Woori Investment & Securities Co., Daewoo Securities Co. and Shinyoung Securities Co., according to two people with direct knowledge of the matter, who asked not to be named as the plan is private.
The notes will be priced to yield 4.3 percentage points more than the six-month London interbank offered rate for dollars, the people said. The rate was last at 0.4576 percent, Bloomberg data show.
Kia rose 0.3 percent to close at 19,050 won in Seoul trading, in line with a 0.3 percent gain in the benchmark Kospi index. The stock has almost tripled this year.
Fitch Ratings on Dec. 9 upgraded Kia’s credit outlook to “positive” from ”negative,” citing sales growth and market share gains. The company is rated BB+ by Fitch, the risk assessor’s highest speculative-grade rating.
To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net
Last Updated: December 11, 2009 03:15 EST
