Shinhan Bank sold a benchmark $700 million 5.5-year bond early Tuesday morning. The 144A/Reg-S senior unsecured deal was issued under the Korean bank's existing $6 billion global medium-term note programme and carries a 4.375% fixed-rate coupon.
The bonds priced through the Shinhan curve with a price of 99.840 and a yield of 4.408%. Initial guidance had been set at 215bp to 225bp over the equivalent US Treasury yield. This was revised to between 205bp and 215bp at the end of Asian trading on Monday. In the end, the bonds were issued at the tight end of guidance with a spread of 205bp, which translated into a spread over mid-swaps of 158.5bp. The bonds will mature on September 15, 2015.
One banker brought attention to the fact that the yield of 4.408% was the lowest of any five- or 5.5-year bond from the Korean banking sector since 2004 when Kexim executed a $300 million tap with a 4.323% yield. This can be attributed to a combination of interest rates, spreads and the timely execution by the borrower.
The bonds were priced against a more positive backdrop than what the markets experienced during February. On Friday, US non-farm payroll data showed that the unemployment rate fell to a five-month low of 9.7% in February. Meanwhile, concerns about the Greek sovereign have subsided on the back of a proposed EU bail-out plan. Closer to home, there has been a lack of new supply in the Asia credit market and investors were hungry for another deal to price.
One banker on the deal noted that the new Shinhan issue led to a re-pricing of other notes issued by the Korean commercial banks, including the outstanding Shinhan 2012s (a $500 million bond), the Kookmin 2014s (a $1 billion covered bond) and the Woori 2014s (an $800 million bond).
The new Shinhan 2015s were priced 15bp tighter than the Shinhan 2012s, which at the time of pricing were quoted at 173bp over mid-swaps. As a result, the existing Shinhan bonds tightened to 160bp in the secondary market yesterday. Woori and the other Korean banks also tightened.
Another comparable was the new Kexim 2015s that priced last week. At the time of the Shinhan pricing, the Kexim bonds were trading at 130bp over mid-swaps. Kookmin was trading 58bp wider than Kexim and Woori was 78bp wider. In comparison, Shinhan priced only 28bp wider than the Kexim 2015s.
In Asian trading yesterday, the Shinhan 2015s tightened to 196bp over Treasuries, while the wider market was largely unchanged from Monday.
The bookrunners on the deal -- Bank of America Merrill Lynch, BNP Paribas, Citi, Deutsche Bank and Morgan Stanley -- secured a final order book of $5 billion from 350 accounts. One source on the deal said the order book grew very quickly and in Asia alone investors placed $1 billion worth of orders before the Monday session opened in London. The deal was launched during the Asian trading day on Monday.
Fund managers bought 79% of the sale, banks 10%, insurance houses 3% and private banks 3%. The remaining 5% was allocated to other investors. In terms of regional distribution, the bulk of the deal was placed in Asia (44%), while US investors took 36% and Europe was allocated the remaining 20%.
"The Asian story is definitely seeing a decent deployment of cash, compared to other regions," said one source. Investors are willing to put money to work in Asia because of the economic growth outlook and the corporate profit outlook. Furthermore, the general business environment outlook is comparatively more stable than in Europe and the US.
However, there are ongoing concerns over the strength of the Korean won. As a response, regulators are continuing to tighten controls over foreign currency supply. This has been evident in terms of the type of Korean issuers coming to market, with the policy banks dominating issuance so far this year. Shinhan is the first Korean commercial bank to sell bonds in the international market this year.
"We have seen only issuers with a strong need-to basis, such as policy banks, enter the primary market, and now the first private institution to be allowed to do so, given its needs as a systemically important local bank," said Brayan Lai, a credit analyst with Credit Agricole CIB.
"This creates pent-up (albeit artificial in the longer-run) demand for Korean paper in the international community as we can evidently see in the rather tight ranges Korean bank credits trade in the secondary," Lai added.
Shinhan was established in 1981 by the Homeland Investment Association of Korean Residents in Japan and the Korean Residents Union in Japan. It is currently the third largest commercial bank in Korea with W311 trillion ($274 billion) of assets.
Prior to pricing, Moody's rated the notes A2, while Standard and Poor's gave them an A- rating.
