South Korea Delays Proposed $1 Billion Bond Sale

By Seyoon Kim and Kim Kyoungwha

Sept. 12 (Bloomberg) -- South Korea's government postponed a $1 billion sale of global bonds after the credit crunch and concerns about the health of North Korean leader Kim Jong Il forced up borrowing costs, the finance ministry said.

``We decided to postpone the sale of the sovereign bonds as the deterioration of the global credit crunch on Lehman Brothers and concerns about North Korea raised the spread,'' the ministry said in a statement released in Gwacheon today. ``We plan to pursue the sale swiftly next time without separately holding investor presentations, when global financial markets conditions improve.''

South Korea's government said last week it would hold presentations for investors on the foreign-currency debt offer in Singapore, Hong Kong, London, Boston and New York from Sept. 8 to 11.

The won has slumped more than 18 percent this year as accelerating inflation and the currency's decline sparked speculation South Korea may be headed for a repeat of 1997, when the won lost half its value and the government turned to the International Monetary Fund for a $57 billion bailout to help companies repay overseas debt.

The ministry said an investor presentation it held for the bond sale this week ``helped eliminate investor concerns'' about a rumored financial crisis in the country and about the soundness of the nation's foreign exchange reserves.

Better Shape

South Korea's debt levels are in better shape now than they were in 1997, according to Credit Suisse, with corporate net debt-to-equity standing at an estimated 18 percent compared with 218 percent in 1997.

Total foreign exchange reserves now exceed short-term external debt by about $72 billion, compared with in 1997 when the short-term external debt exceed reserves by more than $40 billion, Credit Suisse said last week.

South Korea won't face a repeat of the 1997 currency collapse because local banks and companies have more robust finances, Moody's Investors Service said on Sept. 2.

Deputy Finance Minister Shin Je Yoon said last week speculation that the country is facing a September financial crisis is ``groundless.''

South Korea's Unification Ministry said it is on ``high alert'' after a U.S. intelligence official said earlier this week that North Korean leader Kim Jong Il is sick and may have suffered a stroke in the past month.

South and North Korea are still technically at war after their 1950-53 conflict ended without a peace agreement.

South Korea last sold dollar debt in November 2006, raising $500 million from a 10-year 5.125 percent bond sale priced at 69.6 basis points above U.S. Treasuries, data compiled by Bloomberg shows.

To contact the reporter on this story: Seyoon Kim in Seoul at Skim7@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net;