On March 4, Hana Bank made its debut in the international fixed rate market with a $600 million Eurobond. The five-year deal was priced to yield 4.274% or 123bp over Treasuries. It marked the largest Eurobond on record from the Korean commercial banking sector. Lead managers were Bank of America, Citigroup and UBS.
How successful was your recent Eurobond?
Lee: It was one of the most successful Eurobonds from Korea in a very long time. We had a 100% hit rate from the one-on-one meetings and ended up with even distribution across the globe. When we started out we thought we might end up placing about 80% of the deal in Asia, but we actually allocated 37% to Europe and 42% to Asia plus a further 21% to Korea. Since this was our debut deal we had no expectations of how successful it might be, but we were very surprised and happy when the issue size was doubled.
You were able to price through Woori, which is a bigger bank and has a higher rating. Why do you think this was?
Our credit rating might be lower than Woori, but we were able to price through it because investors think our rating will be raised. Woori may have a bigger asset base than us, but some investors think we are more competitive and better managed. Our ROE, for example, is very high - 18.07% in December 2003.
Where do you trade relative to each other in the domestic market?
In the domestic market, the four biggest banks all tend to trade on top of each other. Domestic investors assign a big differential between the top four and the next tier, but not much of a differential between the top four. It's more pronounced in the international market.
What sort of questions were investors asking during the roadshow?
There were a lot of questions about Korean credit card problems, the Citigroup acquisition of KorAm and some queries about the SK Global situation. But we highlighted that we were never severely hit by credit card defaults because our exposure was much smaller than other banks. For example, our exposure to LG Card was about Won260 billion at the end of 2003 and we've assigned Won89 billion in provisions, a 40% coverage ratio. Our exposure to other card companies is minimal.
You mentioned Citi's acquisition of KorAm. How will that affect Hana?
We don't think it will hit our high net worth business, but we did consider the implications of Citi's global franchise and the kind of international services it could provide Korean corporates. However, our strategy is different to most other Korean banks. Our big target is servicing Korean business interests in China and we recently purchased Korea First Bank's 50% stake in Qing Dao Bank, which is also 50% owned by ICBC. In February we injected additional capital and took our stake up to 72.3%. We're now the only Korean bank that owns a Chinese bank.
Will you be returning to the international debt markets this year?
This deal more or less completes our original funding plan for 2004. Originally, we envisaged raising about $600 million from the international debt markets and Won 3 trillion from the domestic debt markets. However, we may re-consider around the time of the second and third quarter. It is possible that we might tap the syndicated loan market, since we'd like to improve our term structure. So far our dollar funding is double what it was in 2003 and our domestic funding is up about 20%.
Why's that?
It's because our asset base has grown. In future, we'd like to increase our foreign currency assets but it all depends on the economic situation in Korea. Obviously economic growth was not that strong last year, though forecasts are higher for this year. We'd like to increase our foreign currency assets because margins tend to be higher and we believe there are more business opportunities.
What are your CAR ratios currently? Is the bank disappointed that KDIC decided not to sell shares back to Hana, which you could have re-sold into the international market at a profit and book the difference in your tier 1 ratio?
At the end of 2003, our tier 1 ratio was 6.21% and our tier 2 ratio 4.96%. The KDIC plan won't affect our capital one way or the other. Under Korean accounting rules, if we had bought back shares from KDCI we would have had to take a capital hit.
