KDB raises $2 billion in second Korean bond sale

Korea Development Bank (KDB) sold $2 billion of five-year global bonds on Friday, pricing inside the launch spread of the Kexim benchmark deal last Monday. The KDB issue was double the size indicated earlier in the week and strong demand was also evident in early secondary market trading with the yield spread narrowing 25bp.

The bonds were issued at 99.145 with a coupon of 8%, yielding 8.212%, which at 675bp over US Treasuries was at the tight end of the initial 670bp-700bp price guidance. That corresponded to 618bp over mid-swaps; Kexim came at 625bp. BNP Paribas, Deutsche Bank, HSBC, Merrill Lynch and Royal Bank of Scotland arranged the transaction.

KDB is rated Aa3 by MoodyÆs Investors Service, which is higher than the A2 sovereign rating assigned to Korea. The rating agency said on Thursday that it may downgrade the foreign currency debt ratings of 10 Korean banks û but not KDB û which are currently higher than the countryÆs rating. Standard & PoorÆs and Fitch rate KDB single-A and A- respectively, the same as the sovereign.

The bond sales by the two policy banks, KDB and Kexim, are the first by banks of any kind from an emerging country since the collapse of Lehman Brothers last September. Korean state-run lenders are assumed to be supported by an implicit sovereign guarantee, but neither KDB nor Kexim chose to pay the 100bp fee for an explicit guarantee, which can be attached only to deals with a maximum three-year tenor. The Korean governmentÆs $100 billion guarantee programme is available for borrowings secured before the end of June 2009.