Joint leads ABN AMRO, BNP Paribas and UBS Warburg priced a $200 million three-year fixed rate bond issue for the Baa1/BBB rated credit last night (Tuesday). With a semi-annual coupon of 4%, Shinhan's deal has set a new post crisis record for the Asian fixed rate sector and beaten the previous record holder - KDB - which launched a 5.25% November 2006 transaction late last year.
Pricing of the new deal was finalised at 99.659% to yield 168.8bp over two-year Treasuries or 63bp over Libor. In Treasury terms, pricing is wider than the original pre-marketed range around the 155bp to 160bp level. However, this is a reflection of collapsing equity markets and the rush back to Treasuries, which has seen two-year Treasuries rally 35bp in just under a week from 2.70% to 2.37%. Consequently, while Shinhan has been able to secure a lower all-in cost of funds than it would have done a week ago, the bank has had to appease investors by offering a slightly higher spread.
In terms of its nearest comparable, Shinhan has come at a roughly 10bp premium to the Korea Development Bank on a like-for-like basis. The state-owned policy bank, which is rated one notch higher at BBB+/A3, has a two and four-year bond outstanding. The former, due April 2004, is currently bid at about 51bp over Libor and the latter, due November 2006, around 55bp over.
This also means that pricing is wider than the original Libor range of flat to a 5bp premium to KDB, but most market participants feel it is more realistic given KDB's status as the de-facto sovereign proxy, with a large and liquid yield curve for investors to play.
In terms of distribution, bankers say that Shinhan's deal attracted 33 investors with a geographical split that saw about one third of bonds placed in Europe, one third in Asia and a third in Korea. By investor type, about 70% was placed with banks and 30% with institutions.
Having managed to secure participation from funds, Shinhan has been able to achieve the stated desire of diversifying its investor base away from the bank market. However, despite its success, many question whether it was a price worth paying given that it has not extended its maturity profile and a loan would have been significantly cheaper.
There is, for example, a $250 million two-year loan currently in syndication for Cho Hung Bank, which is rated one-notch lower than Shinhan. This is being marketed at an all-in cost of 41bp over Libor, some 22bp cheaper for a weaker credit.
"Shinhan is well aware that it would have been cheaper to access the loan market," one observer comments. "But it wanted to diversify its investor base and it is a very good time to come to market. This should be a deal which has positioned Shinhan well and will tighten gradually from here."
