Kim Jinkyung, KeximÆs chief financial officer, told FinanceAsia that, although Kexim ôwould have liked tighter pricing, a smaller issue size would not necessarily have made that easier to achieve. Besides, we preferred to opt for a large-size benchmark dealö.
The bonds were issued at a yield of 8.218% which was 677.7bp over the five-year US Treasury yield, 625bp over mid-swaps, 280bp over Kexim credit default swaps and 350bp over the Korean sovereign CDS. Initial price talk had suggested a spread 600bp-650bp over Treasuries; and trading after the pricing yesterday saw the bonds tighten by 25bp-30bp. Sources said the deal was about two times subscribed, which would have helped create additional demand in the aftermarket.
Kim said that he was ôdelighted" with the deal and with the early secondary market performance of the issue, adding: "It will establish goodwill among investors when we next need to tap the markets. For the same reason, we won't be taking advantage of the issue's strong performance by increasing its size.ö
The non-callable bonds were widely distributed, with 54% allocated to the US, 30% within Asia and 16% to European accounts. Asset managers bought up the bulk, taking about 65% of the issue, while insurance companies and pension funds took 22% and banks the remaining 13%.
The issue was priced at 99.624 with a coupon of 8.125%, payable half-yearly, and has a maturity date of January 21, 2014. The bonds are rated single-A by Standard & PoorÆs, Aa3 by MoodyÆs and A+ by Fitch. Citi, Deutsche Bank, HSBC, Merrill Lynch and RBS Greenwich Capital were joint bookrunners for the sale.
The state-owned trade bank chose not to attach an explicit government guarantee which might have reduced the cost of its funding. Brett Williams at BNP Paribas wrote in a credit note yesterday that ôthis capital raising by a sovereign entityàflays wide open the argument over the premium required for explicit versus implicit debt guarantees; burying the latterö.
Deferring on a government guarantee and going out beyond the safety of the three-year part of the curve is a bold and costly move, he wrote. But ôconsidering that Korean sovereign protection costs were flat between three- and five-year risk, there was arguably an incentive to move out the curveö.
Kim saw little to be gained from gaining state-support for the issue. "Kexim is a very healthy bank, so we had no need to get an explicit government guarantee for the issue,ö he said. ôBesides, a guarantee could only extend for three years, and we are a medium-to-long-term lender, so a three-year issue would have been too short. Also, the current government-guarantee programme ends in June and we're keen not to create two types of Kexim credit in the market.ö
Nevertheless, as Williams pointed out, ôa high funding floor has been set for peers that eschew the government guarantee optionö. KeximÆs 5.25% dollar bonds maturing in 2014 were quoted on Monday at 641.5bp over five-year US Treasuries; and in May last year, the bank paid 138bp over mid-swaps for a Ç750 million five-year issue.
KDB, which is expected to issue a three-year bond later this month and has redemptions of $6.3 billion over the next two years, now has to face the consequences of KeximÆs pricing, says Williams. KoreaÆs other major banks û Woori, Shinhan and Hana û also face G3 debt redemptions that will need to be refinanced.
But Kexim has taken the first-mover advantage. "Our offshore funding requirement for the rest of the year is $2 billion-$3 billion. We are unlikely to come to the dollar market until the second half of the year, but instead will look at other major currencies," said Kim.
In order to help make funds available to Korean companies, the government said last month it would inject W1.65 trillion ($1.2 billion) into KoreaÆs three state-owned banks, including W650 billion into Kexim.
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