Signboard of former JoongAng Ilbo JTBC building [Provided by Yonhap News TV]The bond market is also on edge as five affiliates of the JoongAng Group have filed for corporate rehabilitation proceedings, and even the group's parent company, JoongAng Ilbo, faces the prospect of "debt collection."

This is because while the impact of this situation on the overall bond market is expected to be limited, concerns are rising that the fundraising conditions for non-investment grade bonds could worsen.

According to the Financial Supervisory Service's electronic disclosure system on the 17th, JoongAng Ilbo specified that a default event had occurred for four of its listed corporate bonds: 'JoongAng Ilbo 43-2', 'JoongAng Ilbo 46', 'JoongAng Ilbo 47', and 'JoongAng Ilbo 51'.

A default event means that the borrower loses the right to defer repayment until maturity, allowing creditors to demand immediate repayment regardless of the maturity date.

The company explained that the default event was triggered by a downgrade of more than one notch in its ratings from Korea Investors Service and Korea Ratings compared to the previous rating.

The total outstanding balance of the four bonds was identified as 137 billion won.

On the 15th, Korea Ratings lowered JoongAng Ilbo's unsecured corporate bond rating from BB to B and placed it on its rating watch list (under review for downgrade).

On the same day, Korea Investors Service also downgraded JoongAng Ilbo's unsecured corporate bond credit rating from BB+ to B- and placed it on negative rating watch. The credit ratings for commercial paper and electronic short-term bonds were lowered from B+ to C.

On the 17th, Korea Investors Service further lowered the unsecured corporate bond rating to CCC and placed it back on negative rating watch.

Yang Hee-cheol, a senior analyst at Korea Investors Service, explained the reason for the rating change: "We have judged that uncertainty regarding the company's liquidity management capabilities has significantly increased, including the realization of early repayment burdens for the bonds under review."

The downgrade of JoongAng Ilbo's credit rating was preceded by the filing for corporate rehabilitation proceedings by five JoongAng Group affiliates, including JTBC.

On the 12th, after JTBC failed to repay 20.6 billion won in maturing securitized debt (electronic short-term bonds), JoongAng Holdings, JTBC, Megabox JoongAng, Contentree JoongAng [036420], and JoongAng P&I filed for corporate rehabilitation proceedings with the Seoul Rehabilitation Court.

However, in a statement released on the same day, JoongAng Ilbo stated regarding the default event for the four types of corporate bonds, "The maturity dates for these bonds have not yet arrived, and this is unrelated to the company's actual repayment capacity."

The company also informed that, "JoongAng Ilbo, which is undergoing workout (corporate restructuring), cannot comply with this (demand for early repayment) to maintain equity among creditors in accordance with the relevant procedures."

Individual investors who invested in the bonds of JoongAng Group affiliates are in a state of confusion.

For example, JTBC has a total of four types of listed bonds.

Among them, the price of 'JTBC 36-2' fell from 10,030 won on the 12th to 4,914 won on the day of reporting.

This corporate bond was issued in August 2024 with a coupon rate of 8.1% and was due to mature on the 31st of the following month. The total issuance amount was 33 billion won.

The prices of other JTBC bonds also halved, from around 9,000 won to the 4,000 won range.

If the Seoul Rehabilitation Court decides to commence rehabilitation proceedings, all debts will be frozen. In such a case, creditors' funds will be tied up for a long period, and there is a high possibility that a significant portion of the principal will be reduced or the repayment period will be significantly extended according to the rehabilitation plan that will be determined in the future.

On an online bond investment forum, a post asked, "I hold a total of 40 million won in JTBC corporate bonds. Is it better to sell them now before the money gets tied up, like in the case of JR Global REITs?"

Vice Chairman Hong Jeong-do of JoongAng Group reads an apology at a press conference held at the JoongAng Ilbo Building in Mapo-gu, Seoul on the 15th, regarding the commencement of rehabilitation proceedings due to liquidity crisis of some JoongAng Group affiliates including JTBC. [Yonhap News]

The market is focused on whether this situation will extend beyond the JoongAng Group to the broader bond market.

According to financial information provider Yonhap Infomax, the outstanding balance of JoongAng Group's corporate bonds is 824.3 billion won, and the outstanding balance of short-term funds (CP + electronic short-term bonds) is 197.9 billion won, totaling 1.0222 trillion won.

The total credit exposure to eight major JoongAng Group affiliates, including JoongAng Ilbo and JTBC, is estimated at 1.3 trillion won. Credit exposure refers to the amount of credit, such as loans, provided by financial institutions like banks to a specific counterparty (borrower).

Furthermore, with corporate bond yields showing an upward trend recently, the JoongAng Group situation is raising concerns that it could further tighten fundraising channels for companies.

According to the Korea Financial Investment Association, the yield on AA- rated corporate bonds (non-guaranteed 3-year) was 4.348% on the day of reporting. After rising back into the 4% range for the first time in about two years on March 23rd, it has continued its upward trend.

The yield on BBB- rated corporate bonds (non-guaranteed 3-year) was 10.178%. The BBB- rating yield also broke the 10% mark again at the end of April, for the first time in about two years since May 2024.

An increase in corporate bond yields means that companies have to pay more interest when raising funds by issuing bonds.

Lee Seung-jae, an analyst at iM Securities, assessed that the "possibility of the JoongAng Group situation spreading as a risk to the bond market is limited" when looking at the amount relative to the overall market.

As of the 15th, the outstanding balance of domestic general corporate bonds was approximately 272 trillion won, of which the balance for 'BBB0' grade and below, to which the JoongAng Group belongs, was 1.33 trillion won, accounting for 0.48% of the total. The proportion of JoongAng Group's corporate bonds (824.3 billion won) in the overall market is also only about 0.3%.

However, the analysis suggests that "as an event occurs in the limited liquidity environment of the BBB0 grade and below corporate bond market, investor sentiment towards lower grades may weaken, and the phase of decreasing net issuance of BBB0 grade and below corporate bonds may be extended."

Kim Sang-man, an analyst at Hana Securities, stated, "While the negative impact on the overall bond market is limited, following the recent default by JR Global REITs, continuous problems occurring with lower-grade bonds inevitably seem to lead to a decline in investor sentiment and an increase in risk premiums for lower-grade bonds."

Kim added, "The polarization of the credit market into three tiers (AAA-AA-A grade and below) is likely to be further reinforced by this situation," and "a selective approach is needed for non-investment grade bonds of A grade and below, focusing on companies within conglomerates."

Choi Seong-jong, an analyst at NH Investment & Securities, commented, "As market interest rate volatility increases, vigilance towards BBB grade companies will heighten, leading to deeper polarization. However, given the scale of JoongAng Ilbo's won-denominated bonds and short-term funds, the possibility of system risk contagion is limited."