President Huh Se-hong of GS Caltex.

GS Caltex will offer at least 100 billion won ($84.3 million) in green bonds to invest in eco-friendly production facilities, the oil refinery said in mid-October.

Green bonds allow companies to borrow money at lower interest rates for eco-friendly products or services. Projects in fields like renewable energy and electric vehicles (EV) around the world have used such financing.

Korean companies have just started tapping green finance, and this will be the first time for GS Caltex. The oil refiner has been investing to reduce hazardous emissions from its production sites in recent years.

The company will start a procedure on Oct. 21 to gauge market demand for green bonds with three-year and 10-year maturities. The minimum amount to be issued is 100 billion won and could increase depending on demand, GS said.

The green bonds went on sale Oct. 29.

The money raised will be used to expand facilities at GS’s Yeosu refining facilities in South Jeolla Province.

Upgrading facilities to make them cleaner has become more important due to the fine dust plaguing Korea throughout the year.

GS has been tracking environmental risks from its products and facilities and trying to clean up its act. Investments made so far include scrubbers to reduce sulfur oxide emission and a monitoring system to treat waste water.

“The green bond issuance is part of our business drive to establish ground for future growth by enhancing energy efficiency and producing outcomes that are environmentally approved,” GS said in a statement.

South Korea's debt capital markets stayed in the upbeat mood year-to-date through the third quarter. Issuers rushed to raise funds in a low interest rates environment.

According to the bell's league table, domestic corporate bond issuance via public offerings amounted to 97.4 trillion won, the largest since the bell began tracking the amount. DCM includes straight bonds (SB), financial bonds (FB), and asset-backed securities (ABS). During the same period last year, bond issuance amounted to 95.6 trillion won.

Year-to-date through the third quarter, 47.9 trillion won worth of SB were issued, up more than 6 trillion won compared to the same period last year. SB takes up 46 percent of a total issue amount.

Yet, FB and ABS markets were a bit slower. During the first nine months of 2019, 39.4 trillion won worth of FB and 10.1 trillion won worth of ABS were issued, respectively, down nine percent and seven percent, compared to the same period of 2018.

Market watchers expected the issue amount would decrease in the third quarter as summer vacation, earnings season, and Chuseok holiday, all fall in the same quarter.

However, issuers continued its active fundraising spree. In the third quarter alone, 32.7 trillion won worth of bonds were issued. It is the first time the issue amount surpasses 30 trillion won mark in the third quarter.

It is said that more issuers rushed to raise money in the low interest environment in anticipation of challenging business landscape in the future.

This, coupled with increased market volatility, pushed up the total issue amount. "Market volatility is likely to elevate as low interest rate issue is already reflected in the corporate bond market. There were many issuers who took their chances amid increased uncertainties," said one market watcher.

With growing demand, market polarization based on credit ratings was somewhat mitigated. Although double-A rated bonds still take up more than 50 percent of the total issue amount, it is positive that the share of single-A rated bonds is gradually increasing.

In SB markets, single-A rated bond issue amount was over 10 trillion won, or market share of 23.02 percent, surpassing that of triple-A rated bond. Until last year, the market share of single-A rated bonds was lower than that of triple-A rated bonds.

An aerial view of the GS Caltex oil refinery complex in Yeosu, South Jeolla Province. (Photos: GS Caltex)