Korea's largest diversified manufacturer of glass, industrial paint and building materials priced a debut $100 million bond via sole lead JPMorgan late last week. The seven-year euro-144a deal came in line with the secondary market levels of its nearest comparable, a $250 million bond by SK Corp which launched at the end of May.
BBB-/Baa3-rated Kumgang came flat to SK Corp on a like-for-like basis and, similar to almost all Asian bond deals so far this year, did not need a new issue premium to clear the market. With 15bp on the Korean yield curve, the deal was priced at 270bp over Treasuries on a seven-year maturity against a 242bp bid spread for SK Corp's five-year bond. It carries a coupon of 7.625%.
Observers report an order book of about 25 accounts, with a geographical split of 60% Asia (of which about one third came from Korea), 20% Europe and 20% US. By investor type, the book saw a 35% allocation to asset managers, 30% to insurance funds, 25% to banks and 10% retail.
One of the key selling points of the deal was the company’s low gearing, all the more remarkable for the fact that it is majority owned (37%) by the Chung family, whose propensity for overleverage debt finally brought the whole Hyundai chaebol crashing down.
As of December 2000, Kumgang had a debt-to-EBITDA ratio of 164.4%. This was based on EBITDA of $273.1 million and total debt of $729.2 million, of which $293.3 million fell due within one year, $59.5% between one and two years, $129.5 million between two and five and $28.5 million after five.
Bankers comment that investors were attracted to financials, which would suggest a rating at the other end of the triple-B category and only held down by the cyclical nature of the company’s product line. In its rating release, Standard & Poor’s comments that the rating is backed by the company’s ability to, “sustain high profitability and a moderate financial profile amid cyclical downturns”.
“Kumgang’s earnings and cash flow generation, backed by its leading domestic market position, diversified product lines and strong customer base, will continue to support its credit quality over the medium term,” it concluded.
