The string of rate cuts by the U.S. Federal Reserve has been viewed with enthusiasm by South Korean companies, who are preparing to flood the market with foreign currency bonds. It has followed as companies aim at benefiting from improved conditions in borrowing in the international market. The recent decision by the Fed, to cut its rates, has presented a prospect to the Korean businesses to obtain funds at possibly a lower fee.

Large corporate houses and financial institutions are in the forefront as regard this bond issuing trend. Some firms have declared intentions to float dollar bonds with others considering floating euro or yen bonds. These are expected to avail these firms much-needed capital for expansion, debt refinancing among other aligned initiative by these firms.

The realization of these bond issuances is even more profound because of the prevailing uncertain world economy. Due to prevailing worries over economic decelerations and trade tensions, investors are keen on fortifying their positions that is applying more force on their balance sheets. The opportunity to borrow at considerably lower costs can mean the crucial hedge against future market risks.

But at the same time, such an outcome causes certain concerns related to the emergent dangers of higher reliance on FC assets. Corporate treasurers are being advised not to take chances on their foreign dollars exposures and to think of hedging mechanisms.

The Bank of Korea is paying attention to this development since it can affect the country’s total financial soundness and foreign exchange markets. Although the central bank has kept a low profile to its own monetary policy, some activities of the Korean entities in the global bond markets may exert pressure on future policy directions.

This is not an isolated feature of large companies only but holds true for many companies. Mid-sized also have begun to look at overseas opportunities in the foreign bond markets although on a limited scale. Such a broader participation could mean a more diverse and more competitive corporate financing amid crises in South Korea.

So far, the government is watching this development with mixed feelings. On the one hand, it perceives there is a possibility that enhanced access to increasingly cheaper sources of international funds will improve the Korean firms’ international competitiveness. On the one hand, there are some worries about future effects of the growth of the external indebtedness for the domestic economy.

Other industry analysts are forging the view that this trend will be repeated in the coming months, particularly if interest rates continue to move downwards in the global market. They note that firms with high credit ratings and well developed international markets are likely to be most benefited by these positive market conditions.

The use of foreign bonds is also on the rise in the domestic bond market as well as causing a chain effect. Another potential unattractive outcome that some analysts have suggested could decline could be corporate bond issues on the domestic market with companies possibly being offered potentially more attractive foreign bonds. This shift can pose some implications to the local investors and financial institutions.

As Korean companies look to bond markets outside of their domestic market increasing it is also increasing the visibility of Korea among global investors. This has the overall implications of raising the possibilities for foreign investments in the South Korea’s securities market and also in FDI investments.

However, the possibility for these bond issuances to be successful lies in the global market and investors’ demand. Fluctuations in the global macroeconomic environment or escalation of geopolitical risk could however distort the appeal of these bonds.

Therefore, the relatively recent phenomenon of many South Korean firms turning to overseas Bond markets after the Fed cut its rates is a noteworthy development in the South Korean business environment. Although, it creates prospects for companies to obtain a preferable financing it also includes certain threats which have to be controlled. It will important to look at how this development may continue to affect countries such as the South Korea’s economy and its markets and corporations over the coming months.