Korean policy bank Export Import Bank of Korea (Kexim) printed a $700 million five-and-a-half-year senior bond early yesterday morning, after originally planning to raise up to $1 billion.
The bonds priced at Treasuries plus 170bp, at the tight end of the initial guidance, which was at the area of Treasuries plus 175bp. The coupon was fixed at 3.75%, and the notes reoffered at 99.332 to yield 3.886%. Bank of America Merrill Lynch, HSBC, Royal Bank of Scotland, Standard Chartered and UBS were joint bookrunners. Samsung Securities was a lead manager.
“I think if you look at the Kexim deal, on a spread over Treasuries basis, it looks fair compared to other similarly rated Korean banks,” said Arthur Lau, head of Asia ex-Japan fixed income at PineBridge Investments. “But people should also look at the deal on an overall yield basis.”
Lau suggested that the current low interest-rate environment provided a good window for issuers to tap the bond market, and that on a net-net basis, the overall bond supply from Korean issuers should be flat compared to last year, as most Korean borrowers are raising funds for refinancing needs, rather than for expansion.
The deal is Kexim’s first dollar bond this year. Amid weaker credit markets yesterday, the bonds widened to Treasuries plus 172bp in secondary around noon, and further moved out to Treasuries plus 174bp in the early afternoon. Overall, high-grade bonds widened 3bp to 5bp in the morning yesterday.
Rival bankers suggested that Kexim was fixated on getting a cheap deal. “We’re surprised they didn’t raise $1 billion. They’ve obviously gone for pricing rather than size,” said one rival banker. “It’s an aggressively priced deal; that’s great for the issuer, but doesn’t leave much on the table.”
The key comparable for the deal was Korea Development Bank (KDB), which has bonds that mature on September 2016. The KDB September 2016s were at Treasuries plus 175bp, and as the yield curve for one month is worth about 3bp, this put the theoretical value of a new KDB October 2016 at Treasuries plus 178bp. The new Kexim October 2016s came 8bp inside of that, which meant that Kexim priced inside of KDB’s theoretical yield curve.
Kexim priced just 2bp wide of the outstanding Korea Finance Corp’s (KOFC) October 2016s, which were quoted at Treasuries plus 168bp. KOFC is considered a better credit than Kexim as it is closer to the Korean sovereign.
The deal gathered an order book of $1.8 billion from more than 110 accounts. Kexim has typically enjoyed strong support from US investors, and this time around they bought 43%. Asian investors bought half the deal and Europe 7%. By investor type, insurance and pensions bought a quarter of the deal, funds 37%, banks 31%, private banks and other 7%. The bonds mature on October 20, 2016.
The notes were senior, unsecured and SEC-registered. The issue is rated A1/A/A+ (Moody’s/S&P/Fitch) with stable outlooks from all three rating agencies.
Elsewhere, China Automation on Wednesday night priced its $200 million five-year non-call-three at a yield of 8%, at the wide end of the 7.75% to 8% guidance. The high-yield bonds were bid at 99 today, around the 98.986 reoffer. UBS was sole bookrunner.
The deal was more than two times subscribed. Asian investors bought 67% and European investors bought the rest. Funds bought 45%, private banks 41%, banks 12% and others 2%.
Away from Kexim and China Automation, Indian public-sector lender Syndicate Bank has appointed Bank of America Merrill Lynch, Barclays Capital, Citi, Deutsche Bank, HSBC, J.P. Morgan, Royal Bank of Scotland and Standard Chartered to arrange a series of fixed-income investor meetings in London, Singapore and Hong Kong. The meetings will start today. A dollar bond transaction in Reg-S format might follow on completion of the investor meetings.
