South Korea plans $1 billion FX bond sale, fresh measures on housing market

South Korea's finance ministry said on Thursday it plans to sell about $1 billion of foreign exchange stabilization bonds this year to strengthen its reserves against currency market volatility and the risks of capital outflows in 2017.
In its annual report detailing top priorities for this year, the ministry said the plan is to "secure more foreign currency funds to prepare for any increase in volatilities," without giving further details about arrangers or the timing. South Korea last sold dollar bonds in June 2014, when it issued $1 billion of 30-year notes at 4.143 percent, according to the finance ministry.
Then, the extra yield investors demanded to hold South Korea's sovereign securities instead of US Treasuries was 72.5 basis points. "Demand will be solid for the debt given Korea's resilient economic fundamentals, but now is a tricky time to issue," Kim Doo-un, a fx analyst at Hana Futures said.
"It could be tough to issue at a competitive borrowing cost given there are uncertainties related to the Federal Reserve's policies and Donald Trump administration as he takes office soon." Credit rating agency Standard & Poors upgraded South Korea's sovereign rating by one notch to AA in August 2016. Still, political risks related to a corruption scandal engulfing President Park Geun-hye are clouding the outlook for a successful offering as it hurts investment sentiment for Asia's fourth-largest economy. Park could become the nation's first democratically elected leader to leave office early after parliament voted to impeach her in December over a corruption scandal. The constitutional court has up to 180 days to approve or overturn the decision.
The won is hovering around the weakest level since March 2016 against the dollar as investors gradually relocate their funds from emerging markets to the United States in expectations of higher yields. The ministry also said it will come up with fresh measures in the first half of this year to curb risks in the housing market, saying it would take a targeted approach according to conditions in different parts of the country. South Korea said in November that it plans to limit resales of newly built homes in Seoul and some parts of Busan to curb overheating of the property market. The targeted approach would be necessary due to heated competition for new apartments in some regions, such as the affluent Gangnam district of Seoul, while other areas are suffering from an oversupply of homes.