The two banks are said to have won joint books for the deal late last week and are preparing to launch roadshows for a three to five-year transaction during the week beginning June 10. The 82.3% government-owned policy bank has not yet made a final decision over the exact maturity of the deal, but is said to be leaning towards a three-year offering.
The deal marks a welcome return for a credit, which has long promised to become an active international issuer, but has yet to deliver. To date, it has completed two transactions: a $200 million four-year issue launched in September 1997 only weeks before the Asian financial crisis began to severely impact Korea and a $350 million issue one year later which falls due this September. Both deals were led by Merrill Lynch, with what was then Warburg Dillon Read acting as joint bookrunner on the second transaction.
This latter deal was priced at a 30bp premium to the Korea Development Bank (KDB), but subsequently traded in to a 10bp premium and bankers are almost certain to try and position the credit as close to parity as they can this time round.
In their favour is the huge appetite for Korean paper and the fact that neither KDB, nor Kexim have been particularly active in the international markets in recent years. What will make the task more challenging, however, is investors' view that KDB is the closest sovereign proxy, a situation compounded by the Industrial Bank of Korea's slightly lower credit rating.
With an A3/BBB rating, IBK stands in line with the sovereign where Moody's is concerned, but is rated one notch lower by Standard & Poor's. The differential has long irked both the borrower and its supporters in the market, who argue that all three policy banks have the same level of government supported written into their individual acts. The only difference is said to be the English translation of the IBK act, which differs very slightly.
IBK was established in 1961 to support the small and medium enterprise sector and since the financial crisis has become an increasingly important economic driver as the government reduces the power of the chaebol.
According to its annual report, the bank had a capital adequacy ratio of 10.9% at the end of 2001, of which 9.06% comprised tier 1 equity. At the same time, it reported an ROE (return on equity) of 16.54%, an ROA (return on assets) of 0.89% and an NPL ratio of 2.34%, down from 3.05% in 2000 and 8.31% in 1999.
At the end of the year, it also saw net income climb from Won404.2 billion ($321 million) to Won455 billion ($347 million). In its annual report, it further stated that borrowings stood at $10.289 billion, of which $5.796 billion was Won-denominated and $2.172 billion was foreign currency denominated. In addition to this are debentures of $4.76 billion, of which $4.4 billion are domestic and $360.652 million international, plus other liabilities of $3.466 billion.
