Korea Finance Corp executes aggressively priced global bond

Korea Finance Corp (KoFC) pushed out an aggressively priced $500 million SEC-registered five-year bond early Wednesday, achieving the lowest spread for five-year paper from a Korean bank this year. The bonds priced at Treasuries plus 180bp, at the wide end of the Treasuries plus 175bp to 180bp final guidance, but 10bp inside initial guidance.

By comparison, Industrial Bank of Korea issued a $500 million five-year bond at Treasuries plus 185bp last month. However, amid weaker markets on Wednesday afternoon, KoFC’s new bonds widened slightly and were bid at Treasuries plus 182bp in secondary, 2bp wider than the issue spread.

KoFC issues once a year and it is expected to conclude its dollar funding needs for the year with its latest deal. It has three outstanding dollar bonds, so investors were keen to take exposure to the new issue. As the Korean government owns 100% of KoFC and it is illegal for it to sell down its stake according to a statute, there is strong implicit government support for the bonds.

KoFC, rated A1/A/A+, paid a negative to flat new issue premium, which was impressive from the issuer’s standpoint. The outstanding KoFC 2016s were at Treasuries plus 168bp, which put fair value of a new KoFC bond maturing August 2017 at Treasuries plus 181bp. KoFC priced 1bp inside of that. In contrast, recent issuers such as State Bank of India was said to have paid a new-issue premium of about 25bp and Korean bank deals about 5bp to 10bp.

KoFC also priced inside of other outstanding Korean bank paper. For instance, the KDB 2017s were at Treasuries plus 183bp, which put the fair value of a new bond at Treasuries plus 182bp, according to a syndicate banker. The Industrial Bank of Korea 2017s were at Treasuries plus 183bp, which put fair value at Treasuries plus 184bp.

The deal attracted an order book of $1.8 billion from 140 accounts. Asian investors were allocated 51%, European 26% and US investors 23%. By investor type, fund managers 51%, banks 20%, public sector 16%, private banks 7% and insurers/pension funds 6%. The coupon was fixed at 2.25% and the bonds reoffered at 99.251 to yield 2.41%.

Bank of America Merrill Lynch, Deutsche Bank, HSBC, KDB and Morgan Stanley were the bookrunners.