A missed bond payment by the developer of a South Korean theme park has rattled the country’s money markets and raised worries about the prospect of a credit crunch similar to the kind that threw China’s property market and economy into crisis. | Reuters
“The Legoland case was like getting COVID when you are barely breathing at an intensive care ward,” said Cho Dou-hyung, a credit analyst at Shinhan BNP Paribas Asset Management. “It looks like the credit market is getting enough policy support for now, but the jitters are unlikely to go away unless the Fed and the Bank of Korea give some sort of assurance about possible slowdown in policy tightening.
It also shocked some investors as the case showed even state-backed developers at risk of defaults amid surging interest rates. The company is 44 percent owned by Gangwon Province, whose asset-backed commercial paper was A1 rated and guaranteed by the local government. Legoland, a the park resort on the island of Chuncheon that boasts 40 rides and a 154-room hotel, said on Thursday it will close down for three months starting January 2023 “for maintenance.”Some top-tier state-run enterprises have struggled to obtain financing this week, even after the government’s 50 trillion won package announced on Sunday to buy more commercial debt from financial institutions.
Gangwon province, which is required to repay the loan as state guarantor of developer’s debt, has said it will pay the entire 205 billion won by Dec. 15.“The financial groups themselves have relatively little exposure to troubled or likely to be troubled ABCP but would feel the after-effects of tougher domestic funding conditions via lower margins for their credit card businesses and increased demand for corporate loans,” CreditSights said in a report released on Friday.
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