Recent developments in the U.S. financial markets have caused a significant rise in Treasury yields, which is now impacting South Korean industries with high foreign-debt levels. Notably, Korean battery makers such as LG Energy Solution, SK On, and Samsung SDI, are experiencing increased borrowing costs as dollar-denominated liabilities grow and interest rates climb. LG Energy Solution reported foreign liabilities of 16.8 trillion won ($12.26 billion) in the first half, an increase driven largely by overseas investments. A 1 percentage point increase in interest rates could generate an additional expense of 97.9 billion won for this company.
Similarly, SK On’s short-term borrowings reached 4 trillion won, and Samsung SDI’s dollar debt stood at 1.7 trillion won, both heightening their exposure to ongoing rate hikes. The broader external environment also affects the airline industry, with Korean Air estimating that a 1 percentage point rate increase could raise interest expenses by 71 billion won. The airline’s foreign currency liabilities increased to 7.6 trillion won this year, prompting management to diversify currency holdings and hedge risks with derivatives.
The rise in U.S. Treasury yields, now exceeding 5 percent, reflects a global shift toward monetary tightening. This has forced many South Korean companies to reassess their risk management strategies amidst inflationary pressures driven by oil prices and regional conflicts. While some firms carry fixed-rate liabilities, those with floating-rate contracts could face higher costs if the trend persists. Industry analysts highlight the importance of vigilant financial hedging as monetary conditions remain volatile, with implications for South Korea’s export-oriented sectors.
