Under the lead management of Barclays and Salomon Smith Barney, investor presentations begin today (Monday) for pricing on Thursday. There will be two teams, with one covering Hong Kong, Singapore, London and New York and the other moving from the American West to East coast.
The Baa2/BBB-rated borrower is hoping to raise $500 million from an SEC registered global bond offering. The deal will mark the first time KDB has come to the public dollar markets since April 1999 and only the second time since the beginning of the Asian financial crisis.
Indeed, investors have been almost completely starved of paper from the Republic's three quasi-sovereign borrowers over the past few years, with Industrial Bank of Korea the last to issue back in September 1999. Consequently, most DCM professionals believe the new deal will be a success even though indicative pricing is through current secondary levels.
KDB has a reputation for haggling down to the last basis point and its handling of the new deal is already shaping up to be no different to usual. Indicative price talk of 150bp to 155bp over Treasuries is an optimistic10bp tighter than the current secondary bid/offer spread of its 7.125% April 2006 transaction trading at 165bp/155bp over.
With pricing ambitions this tight, the deal is likely to have little appeal to US accounts. The de-facto US corporate benchmark Ford Motor, for example, has a three-notch higher rating than KDB, but trades about 100bp wider.
Korean spreads have been strong perfromers against both regional and international comparables because of strong onshore demand from the Republic itself. This means that the new deal is likely to be predominantly placed in Asia, with a five-year maturity also having greatest appeal to regional investors.
Some bankers have, therefore, come to the conclusion that although pricing looks unreasonable relative KDB's credit rating, investors will gamble that there will be upside because the domestic bid will push the deal tighter as paper flows back to Korea during secondary trading.
The size of the deal should also play well for success, since it is large enough to mean that index funds have to participate, but not so large that the borrower will need to take into account the demands of the most price sensitive investors.
"There is very little out there in the Korean credit universe that's large and liquid," one banker concludes. "The whole curve is very technical, but this transaction will enable investors to deal because there will be a reasonable bid/offer spread for once."
