Korean quasi-sovereign borrower National Agriculture Cooperative Federation (NACF) grabbed the opportunity to price a $500 million five-and-a-half-year senior bond early yesterday morning.
The timing proved fortuitous as financial markets rallied briefly on Monday, only to slide into the red yesterday. The investment-grade borrower, which provides financing for the development of Korea’s agriculture industry, had been planning to launch a deal around mid-June but was kept at bay by poor market conditions.
On Sunday evening, US politicians reached a tentative eleventh-hour agreement to raise the country’s debt ceiling and avert a default, which prompted investors into a relief rally.
On Monday morning in Asia, shortly after Barack Obama announced the deal, NACF’s lead banks — Bank of America Merrill Lynch, Citi, Credit Agricole, Deutsche Bank and Standard Chartered — released initial guidance in the area of Treasuries plus 240bp, which was subsequently revised to Treasuries plus 230bp plus or minus 2bp, and the bonds eventually priced at the tight end of final guidance or 12bp inside the initial guidance.
The bonds performed solidly in the secondary market, tightening to Treasuries plus 223bp yesterday morning despite a 5bp rally in US Treasuries overnight. They continued to hold up in the secondary markets yesterday afternoon at Treasuries plus 224bp despite markets moving into negative territory.
“NACF picked the right window. Today, the Korean markets are down and so is the Nikkei,” said one banker away from the transaction.
The deal gathered an order book of $3.4 billion from 210 investors. Asian investors were allocated 58%, US investors 27% and European investors 15%. Fund managers were allocated 58.5%, banks 14%, insurers 12.5%, private banks 7% and government/corporates 8%.
NACF priced its new bond flat to slightly inside its implied yield curve. According to one observer, the main comparable was the NACF January 2016s, which were trading at Treasuries plus 190bp or a z-spread of 186bp. The new bonds, which priced at Treasuries plus 228bp came at a z-spread of 184bp or inside of the outstanding bonds on a z-spread basis.
The new NACF bonds, which mature February 2017, offered a pick-up of 38bp for a 13-month extension. The US Treasury yield curve between the January 2016s and February 2017s was worth about 37bp, so the new NACF bonds priced roughly flat to its implied secondary curve.
The other comparables included the Kexim 2016s, which were at Treasuries plus 187bp; the Kookmin 2016s, which were at Treasuries plus 209bp; and the recent KHFC 2016s, which were at Treasuries plus 186bp. NACF’s bonds are rated A1 by Moody’s and A by S&P.
The coupon was fixed at 3.5% and the notes were reoffered at 99.569.
