Lead managers JPMorgan and Merrill Lynch priced a new $350 million Reg S deal for the Industrial Bank of Korea (IBK) yesterday (Tuesday). Pricing of the five-year deal came at 99.362% on a coupon of 4.375% to yield 4.519% or 130bp over Treasuries.
This represented a 13bp pick-up to the Korea Development Bank (KDB), which was bid at 117bp at the time of pricing and 9bp pick-up to the Export Import Bank of Korea (Kexim), which was bid at 121bp over. At first sight, pricing seems wide relative to the levels achieved by IBK when it last accessed the market in mid-September. At this point it was able to achieve a 2bp to 4bp premium on a $500 million bond with a three-year maturity.
Since then, however, there has been $1.45 billion in issuance from KDB and Kexim at the five-year part of the curve and the novelty factor for Korean policy banks has clearly worn off. Bankers also point out that while US Treasuries have spiked upwards in past two weeks, both KDB and Kexim have been tightening on a spread to Treasury basis since launch, making IBK look better on a relative basis. Kexim, for example, priced a $700 million deal late last week at 99.987% on a coupon of 4.25% to yield 127bp over Treasuries.
They also argue that on like-for-like basis against Libor, pricing of the new IBK bond at 80bp over lies on top of the secondary market level of the existing three-year bond, which was bid at 68bp over yesterday.
On a historical basis, IBK also used to trade at a 10bp premium to KDB and still has a one notch lower rating from Standard & PoorÆs BBB+ despite the continuing protestations of its many supporters.
Bankers report the participation of about 65 accounts in total, with books closing just under two times subscribed. By geography, the book broke down Europe 20% and Asia 80%, with Korea taking about 15%. This is broadly similar to IBK's last international outing, when it attracted 76 accounts and had a 25%/75% distribution split between Europe and Asia.
By investor type, virtually all the European investors were said to have been funds, while Asia had a more even split between funds and banks. Most orders were also said to have been cash rather than switches, indicating that the market still has room to absorb paper.
Commenting on the new deal, Chris Nicholas, JPMorgan's dapper head of Asian fixed income concludes, "IBK were very realistic about what they could achieve with the new deal. They were smart enough to realise there has been a lot of paper in recent weeks and therefore wanted to price a market clearing deal that would trade well in the secondary market."
Fees totaled 25bp and there was no other syndicate.
