| Instruments | The following are the major outstanding special public bonds (or quasi-government bonds): • Monetary Stabilization Bonds • Financial Debentures • Public Corporations or Special Law Bonds (e.g., Korea Electric Power Corporation, Korea Land Development Corporation, Korea Highway Corporation) |
| Issuer | Designated public entities: • Bank of Korea • Government-invested corporations • Financial institutions |
| Tenor | 1 to 10 years |
| Currency | Korean won |
| Interest Payment | Interest is generally fixed and paid quarterly or annually.
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| Average Issue Size | KRW 50 billion to KRW 1 trillion (range) |
| Minimum Amount of Bid | KRW 10,000 |
| Method of Sale in the Primary Market | Public offering: Monetary Stabilization Bonds follow a Dutch Auction or Window sales methods |
| Who May Apply | Any registered investor through designated financial institutions. |
| Redemption | Generally redeemed annually but different corporate bonds may have different redemption features. |
| Taxation | Interest Income: 14% withholding tax. Combined taxes result in an effective rate of 15.4%. Capital Gains: Nonresidents are taxed 10% of gross proceeds or 25% of capital gains, whichever is lower. Residents are taxed 15%. Effective rates of 11%, 27.5% and 16.5%, respectively, as a result of combined taxes. Exemptions are given to foreign investors from countries with double taxation treaties. |
| Secondary Market Trading | Mostly over-the-counter and on the Korea Exchange though securities firms. |
| Issuer | Domestic corporations listed on the Korea Exchange or at least registered with the Securities and Exchange Commission. |
| Tenor | 1 to 5 years, mostly 3 years |
| Currency | Korean won |
| Interest Payment | Mostly fixed-rate with quarterly interest payments. Most floating-rate bonds have longer maturities. Day count: actual / 365 days |
| Average Issue Size | KRW 10 billion to KRW 200 billion (range) |
| Minimum Amount of Bid | KRW 10,000 |
| Method of Sale in the Primary Market | Public offering or private placement. |
| Who May Apply | Any registered investor through designated financial institutions. |
| Redemption | Redeemed at par upon maturity. Some bonds could be callable before maturity or convertible to shares of issuer. |
| Taxation | Interest Income: 14% withholding tax. Combined taxes result in an effective rate of 15.4%. Capital Gains: Nonresidents are taxed 10% of gross proceeds or 25% of capital gains, whichever is lower. Residents are taxed 15%. Effective rates of 11%, 27.5% and 16.5%, respectively, as a result of combined taxes. Exemptions are given to foreign investors from countries with double taxation treaties. |
| Secondary Market Trading | Mostly over-the-counter and on the Korea Exchange though securities firms. |
A. Special Public Bond Issuers
Monetary Stabilization Bonds (MSBs) are issued by the Bank of Korea (BoK) to control money supply. Since 1998, there has been a sharp growth in MSBs outstanding in the market as BoK issued bonds to absorb the liquidity increase that was used to rescue troubled financial institutions. Sizeable balance of payments surplus also contributed to the growth of the market as the BoK used MSBs to “sterilize” FX market intervention.
Financial Debentures are issued by Financial Institutions such as Korea Development Bank and Industrial Bank of Korea. They are divided into different categories: discount bonds, compound bonds and coupon bonds. These financial debentures are actively traded in the secondary market.
Public Corporations or Special Law Bonds are issued by public corporations largely owned by the government. They are also known as “special law bonds” as they are established and issued through special laws. The market conventionally regards them as quasi-sovereign bonds, although the law does not provide for any written guarantee by the government. Major special law bonds include Korea Electric Power Corporation Bonds, Korea Highway Corporation Bonds, and Korea Land Corporation Bonds.
B. Private Corporate Bond Issuers
Private Corporate bonds in Korea are classified according to guarantee, expiration dates, collateral or variability of interest rates, or special rights as follows:
- Guaranteed and nonguaranteed bonds
- Corporate mortgage bonds
- Long-term and short-term maturity bonds
- Fixed-rate and floating-rate bonds
- Bonds with special rights: convertible bonds (CBs), bonds with warrant (BWs), exchangeable bonds (EBs), participation bonds (PBs), bonds with embedded options (BOs)
A list of outstanding bond issues is available at the Bank of Korea and Korea BondWeb, and the Korea Exchange websites. They also provide amount of issuance, issue and maturity dates, and credit ratings, among others.