Sept. 12 (Bloomberg) -- South Korea delayed its $1 billion bond sale, the first in two years, as concern over the future of Lehman Brothers Holdings Inc. and the health of North Korean leader Kim Jong Il forced up borrowing costs.

The government didn't want to pay more than 200 basis points over the 10-year U.S. Treasury yield, according to Choi Jong Ku, a director general at the finance ministry in Gwacheon. South Korea's last offer of similar dollar-denominated debt in November 2006 was priced at 69.6 basis points above Treasuries.

``The government can wait until market jitters over Lehman Brothers and the North Korean leader's health calm to get better terms,'' said Seo Chul Soo, a fixed-income analyst at Daewoo Securities Co. in Seoul.

Korea's won has risen since the bond sale was announced last week, as concern recedes the country is heading for another financial crisis. The currency slumped 7 percent in August as global investors sold stocks and bonds, raising speculation there would be a repeat of the 1997 meltdown, when the won lost half its value and government had to turn to the International Monetary Fund for a bailout.

The finance ministry said a presentation it held this week about the offer ``helped eliminate investor concerns'' over the rumored crisis and the soundness of the nation's foreign exchange reserves.

``We plan to pursue the sale swiftly next time, without separately holding investor presentations, when global financial markets conditions improve,'' it said in statement from Gwacheon.

Bond Spread

South Korea's 5.125 percent bonds maturing in 2016 traded at 185 basis points above U.S. Treasuries at 10:40 a.m. in Hong Kong, down 7 basis points from yesterday, data compiled by Bloomberg show.

The won fell 0.3 percent to 1,112.35 versus the dollar today. The currency has gained almost 2 percent since the Sept. 4 bond sale announcement.

Moody's Investors Service said last week South Korea won't face a repeat of the 1997 currency collapse because local banks and companies have more robust finances, and the government has ample currency reserves.

Total foreign-exchange reserves now exceed short-term external debt by about $72 billion. In 1997 short-term external debt exceeded reserves by more than $40 billion, according to Credit Suisse.

The government may want to wait until it has more information about the health of the North Korean leader before proceeding with the sale.

Kim Jong Il suffered a cerebral hemorrhage or a related illness and is recovering, South Korea's Yonhap News reported Sept. 10, citing an unidentified lawmaker who attended a National Intelligence Service briefing. South and North Korea are still technically at war after their 1950-53 conflict ended without a peace agreement.


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