In terms of comparables, the Korean sovereignÆs 2013s were trading at 155bp/130bp over Treasuries, while Korea Development BankÆs bonds were trading at 210bp/195bp over Treasuries. The bonds priced 10bp inside similarly-rated Korea Southern Power (Kospo) and Korea Midland Power (Komipo), which were also thought to be relevant comparables. These were both trading at 245bp/240bp over Treasuries.
Despite seemingly aggressive pricing, the Korail bonds tightened by 10bp to 227bp/223bp over secondaries on Friday. The transaction was also five times covered, attracting 100 accounts.
"Investors play in new issues at the moment because they see the upside of performance," says a source.
"The success of the deal shows there is clearly pent-up demand from investors, and not enough issuance for them to play in," says a banker.
The credit had much working in its favour. "Korail is a perfect name in these markets, given the companyÆs strong underlying business, stable cash flows and government support,ö says a syndicate banker away from the deal. ôThe addition of a change-of-control made this a no-brainer.ö The change-of-control clause allows investors to redeem the bonds at par should government-ownership of the company fall below 51%.
Furthermore, unlike Kospo and Komipo û power generators owned by Korea Electric Power Corporation, which is itself 100%-owned by the government û the credit is directly owned by the sovereign and of greater strategic importance as a national entity than either Kospo or Komipo. Korail is the key implementation arm of the government's nationwide railroad policy and the sole operator of conventional and high-speed railways in Korea. Buyers therefore bought into a company of strategic importance to the sovereign, and of identical rating.
The rarity value of the paper also played a large part in the success of the deal. The previous 100%-owned quasi-sovereign corporate to issue a bond in the international markets was Korea National Housing Corporation, which priced a $500 million floating rate note (FRN) in November 2006.
Investors who participated are happy: ôThe bonds were very attractively priced, I thought, and it looks like they were placed in safe hands. There continues to be follow-on demand, despite weaker credit spreads in the past two sessions,ö says a source on the buy-side.
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