SK Broadband raised a debut $300 million five-year bond, buoyed by strong investor demand for high quality assets from South Korea as well as improving pricing environment after the US debt ceiling resolution.
The South Korean internet service provider priced its first dollar note 30bp tighter than the initial price guidance of 200bp above Treasuries – one of the most aggressive pricing revisions seen in the Korean space this year, according to a source close to the deal. The bond has a coupon of 2.875%.
“One of the reasons why we were able to do this was because we announced from the outset that this was going to be a capped transaction at $300 million,” said the source.
Additionally, spreads on dollar securities in the region dropped to 286bp more than Treasuries on October 18, the lowest since September 20 after the resolution of the US budget talks on October 17, according to JPMorgan indexes.
The closest comparables for the Reg S bond were its parent SK Telecom’s March 2018s, which are rated a notch higher and were trading at Treasury plus 125bp with a G-spread of 140bp at the time of pricing, as well as SK Innovation’s – SK Group’s oil and gas arm – August 2018s, which were trading at Treasuries plus 167bp with a G-spread of 172bp.
After accounting for fair value adjustments, investors were expecting SK Broadband’s BBB+ rated transaction to price in the high-100bp to 200bp area, noted the source. The bond is now trading modestly inside the reoffer price of 99.185 at 165bp above Treasuries in secondary markets.
“The recent performance in the Korean space indicates that investors continue to have appetite,” said the source. “There is still a good underpinning of high quality investors waiting to put cash to work.”
Asia’s bond markets are set to be one of the biggest winners from last Wednesday night’s deal to end the US fiscal impasse. Rates are expected to stay low for the moment and any reduction of quantitative easing is now likely to be pushed back to 2014.
Since the resolution of the US budget talks, credits in the Korean space have tightened by approximately 5bp-10bp, note syndicate bankers.
SK Broadband’s final order book for its dollar issuance was recorded at $3.6 billion with participation from 232 accounts across time zones, according to a press release from the company, which is also a frequent issuer in the domestic space.
Asian investors subscribed to a bulk of the bond - 73% - followed by Europe with 25% and offshore US with 2%. Asset managers took approximately 78%, financial institutions and central banks 12%, private banks 7% and the remaining 3% to insurers.
The funds raised by this offering will be used for SK Broadband’s general corporate purposes.
On Tuesday alone, Haitong International Finance Holdings, an indirect wholly owned subsidiary of Haitong Securities, is planning to price a Reg S dollar bond at an initial price guidance of Treasuries plus 287.5bp. Bank of China, Deutsche Bank and Haitong International are joint bookrunners of the deal.
Also, Hong Kong-listed aluminium group Chalco is marketing a five-year dollar senior perpetual with a step-up option from the fifth year onwards at a price guidance of around 6.625%, according to a source. ANZ, HSBC and Natixis are sale managers of the bond.
Barclays, Deutsche Bank and HSBC were joint bookrunners and lead managers of SK Broadband’s offering.
