Hana Bank priced a $300 million three-year floating senior unsecured note issue on Monday after Kookmin sold a similar note a month earlier, pricing aggressively inside its curve as investors flocked to the rarely issued instrument.
The 144a/Reg S note had an initial price guidance of three-month dollar Libor plus 135bp but ended up pricing at the tight end of the lead managers' final guidance at 112.5bp above Libor, a source familiar with the matter said.
That compared with Hana’s existing 2016 floating rate note, which traded at a Z-spread of 120bp, and Kookmin’s, which traded at Libor plus 110bp at the time of pricing. A Z-spread – also known as a zero-volatility spread – measures the spread that the investor will receive over the entire US Treasury spot rate curve. After adjusting for the curve, the fair value of the bond was at around the three-month Libor plus 125bp.
“It is one of the most aggressive pricing [levels seen] for a floating-rate note, particularly for something of this tenor,” said the source. “It was priced 7.5bp through [the] existing cost of funding of the 2016s, and also 12.5bp through the implied cost of funding for a new three-year [note] had it priced [at initial price guidance]."
In secondary markets, Hana’s floater outperformed, tightening to three-month Libor plus 109bp.
The A1/A rated note received an orderbook of approximately $2.6 billion from 146 accounts. Fund managers and hedge funds accounted for 52% of the subscription, followed by financial institutions with 40%, public and agencies at 5%, insurance at 2% and private banks at 1%.
Asian investors bought slightly more than half of the issue, followed by Europe with 24% and US 20%, according to a term sheet.
“The fact that there is good secondary market performance clearly attracts more hedge funds to participate [since] they may get some profit,” said the source. “Also, a lot of banks have floating rate liabilities and would like to match those liabilities by putting a certain amount into floating rate notes.”
Strong investor demand for Hana’s floating rate notes was also supported by recent talk that the Federal Reserve could begin tapering its quantitative easing programme earlier than March 2014 – perhaps at its next Federal Open Market Committee meeting in December – due to better-than-expected US manufacturing data, noted one syndicate banker.
“Rates have moved out a little bit wider over concerns that there may be a rates selloff,” he said. “With that regard, a floating-rate note protects you much better against rate movements than an outright [fixed rate] position.”
The Institute for Supply Management’s index of US industrial activity rose to 56.4 in October from 56.2 in September, reaching its highest level since April 2011, data showed Friday. A figure above 50 indicates growth.
The 10-year yield climbed 11bp last week, the most since the period ended September 6, according to Bloomberg data.
Barclays, HSBC, Mizuho Securities and Société Générale were joint-lead managers and bookrunners of Hana’s deal.
