Companies Busy with Call Option Exercise... "Lowering Interest Costs in Succession" or "Refinancing Burden" [fnMarketWatch]

[Financial News] Companies are busy exercising call options on capital securities (new capital securities, subordinated bonds). If they fail to exercise the call option in time, it will impact their credit rating and cause interest rates to rise. Some companies are proactively knocking on the doors of public and private bond markets to raise funds for exercising call options.  
According to the financial investment industry on the 14th, SK Innovation exercised the call option on the 30-year new capital securities issued in July 2020. The amount exercised on this day is about 145 billion KRW.
Previously, SK Innovation raised 800 billion KRW in corporate bonds in the public market. The interest rates for the 2, 3, and 5-year bonds were lowered to 2.9~3.0% per annum from the previous 3.6% per annum.
KB Financial Group also exercised the call option on the 370 billion KRW new capital securities issued in 2020 on this day. KB Financial Group issued a total of 650 billion KRW in the public market in April and May. Some of this is interpreted as funds for responding to call options.
The public bonds issued in April and May were for 2 and 3-year terms, with interest rates decided at 2.5~2.6% per annum. Considering that the perpetual bond issued five years ago had an interest rate of 3.17% per annum, they succeeded in reducing interest costs. Lotte Cultureworks, an affiliate of Lotte Group that operates Lotte Cinema, also exercised the call option on the perpetual bond on June 29. It is a 30-year perpetual bond issued in 2023, amounting to 30 billion KRW. 
Lotte Capital, an affiliate, has a call option exercise date for a 50 billion KRW perpetual bond on the 6th of next month. Shinhan Life Insurance also has a call option exercise date for 300 billion KRW on the 12th of next month.
Meanwhile, capital securities such as new capital securities and subordinated securities are recognized as capital in accounting, so companies and financial institutions are increasing their utilization for cash securing and financial soundness management. The reason companies are putting their all into call options is due to credit ratings and interest costs. If the call option initiation date passes without repayment, the step-up clause (applying an additional interest rate if the call option is not exercised) will increase the interest rate or negatively affect investment sentiment by indicating a financial problem.
khj91@fnnews.com Kim Hyun-jung Reporter