Provincially-owned companies in South Korea

Bond sales by provincially-owned companies in South Korea jumped 83.4 percent in 2012 from a year earlier due mainly to repay maturing debts, data showed Monday, sounding alarm bells over their financial health.

The combined amount of bonds issued by the 23 firms owned by provincial governments came to 10.1 trillion won (US$ 9.15 billion) last year, compared to 5.5 trillion won tallied a year earlier, according to the Korea Securities Depository.

SH Corporation, the land and housing developer of the capital Seoul, saw its debt sales reach 3.9 trillion won last year, compared to 2.1 trillion won tallied in 2011, the data showed.

Gyeonggi Urban Innovation Corporation issued 1.8 trillion won in bonds last year, up three-fold from 560 billion won tallied a year earlier.

Incheon Development & Tourism Corporation issued 1.1 trillion won in 2012.

Market watchers said provincially-run companies expanded their bond issuance to repay maturing debts. Local firms are obligated to repay maturing bonds worth 20.8 trillion won in the next five years.

"Except for 700 billion won, the rest of the proceeds from the debt sale will be used to repay maturing debts," an official from SH Corporation said.

The rising debts among those corporations are attributable to the protracted slowdown in the property market, which resulted in a liquidity crisis as it weighed down on their development projects.

"Due to the rising number of unsold houses, provincially-run developers cannot afford to repay maturing debts, eventually issuing more bonds to hold off repayment," an official from a state-run firm said.

The prices of local homes fell 0.26 percent on average from a month earlier in January, posting an on-month drop for 10 straight months. The number of unsold houses came to 75,180 units last month, rising 19.43 percent on-year.

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