Joint-leads ABN Amro and Merrill Lynch completed an upsized $400 million five-year Eurobond for NACF after Asia's close on Friday.
The A3/BBB+ rated deal was launched off a newly established $1.5 billion MTN programme and priced at 99.818% on a coupon of 3.45% to yield 3.449% or 144bp over Treasuries. As a debut borrower, the nearest pricing comparable was the similarly rated IBK, whose recent June 2008 bond was trading between 137bp to 139bp bid at the time of pricing.
Some market participants thought the premium a little wide considering the similar ratings and novelty value of the deal. However, most thought it was spot on given NACF's lack of an investor track record, the large number of deals from Korea in the market and a slightly weaker form of government support.
And indeed, there is a much wider differential between IBK and both KDB and Kexim, than there is between IBK and NACF. What translates as a roughly 30bp differential can partly be attributed to the fact that the other two are seen as proxy sovereign borrowers. But partly it is also because S&P rates IBK one notch lower as a result of a perceived weaker form of government support.
NACF does not have the liquidity clauses embedded in either the IBK, KDB and Kexim Acts, but in article nine of the Agricultural Co-operative Law it does state that the government shall, "make the best efforts" to meet any of the Federation's financing requests. In its ratings review, Moody's also stated that it expected NACF to, "enjoy full support of the government given its important function and size."
Observers report that accounts were initially seeking a premium of up to 15bp over IBK, but the large size of the order book meant that it could be squeezed down. After roadshows in Singapore, Hong Kong and Europe, followed by a one-day bookbuild, the deal closed 3.6 times oversubscribed at the initial $300 million amount.
About 107 investors were said to have participated with a geographical breakdown, which saw 67% placed in Asia, 20% in the UK, 10% in continental Europe and 3% offshore US. Of the Asian demand, Korea accounted for just 16% since the borrower was keen to widen distribution as far as possible.
By investor type, funds took 45%, banks 35%, insurance companies 10% and retail 10%.
