The Export-Import Bank of Korea (Kexim) sold a $1 billion dual-tranche bond on Wednesday morning, ending Korean issuers’ month-long hiatus in global capital markets.
The so-called summer lull enabled the state-owned export credit agency to raise larger size financing at competitive levels as there was minimal market competition from other Asian borrowers.
The other dollar-denominated deal that launched on the same day was China Merchants Bank’s $500 million five-year note, which ended up pricing on Tuesday night.
"As the market window for the second half of 2014 is relatively short due to holidays in major centres, we tapped the market ahead of potential supply in September," said Hee-sung Yoon, general manager for Kexim's treasury department to FinanceAsia.
"We thought this dual-tranche structure would allow us to achieve both pricing and maturity extension [and] bring new breadth to the market," he added.
Kexim priced its five-year $500 million and 12-year $500 million bond offerings at Treasuries plus 72.5bp and 85bp, which is 17.5bp and 16bp tighter respectively than their initial price guidance, according to a term sheet seen by FinanceAsia. That is equivalent to a yield of 2.407% and 3.364% for the five- and 12-year tranche respectively.
The SEC-registered bonds also come at a time when many investors deem Korea a developed market, similar to that of Japan and Singapore, a separate source added.
The Korean sovereign’s strong rating of AA- by Fitch are underpinned by its fundamental strengths, which include a resilient economy and a robust macroeconomic policy framework in which sustained fiscal discipline and a flexible exchange rate remain intact, according to the rating agency in a June report.
The proceeds from the new issue will be used for the bank’s general operations, including extending foreign currency loans, repaying maturing debt and other obligations, sources said.
Kookmin Bank was the last Korean issuer to tap international markets for $500 million or more. On July 7, the financial institution sold a $500 million three-year note.
Comparables
The nearest comparables for Kexim’s new bonds were its existing dollar-denominated bonds, including its five-year paper expiring in 2018 that were trading at Treasuries plus 47bp prior to pricing, as well as its 10-year note maturing in 2024 that was trading at Treasuries plus 71bp, a source familiar with the matter said.
Other comparables include Korea Development Bank’s existing five- and 10-year dollar notes with maturities of 2019 and 2024 that were trading at Treasuries plus 67bp and 71bp prior to the pricing of Kexim’s notes.
In secondary markets, the five- and 12-year offerings traded wider by 3bp and 5bp respectively after it priced, according to Bloomberg data. Hedge funds sold off most of their positions in the latter tranche as it priced too aggressively in primary markets, according to a source.
“Kexim’s five-year note priced flat to maybe a few basis points more versus its secondary curve, but for the 12-year, it priced 5bp to 10bp inside its curve, so there’s less value in that and investors saw more pickup on the five-year versus the 12-year,” a source said.
Quality order book
Both tranches received good subscription from quality investors.
Asset managers purchased 60% of the five-year tranche — which received a total order book of $2.5 billion from 160 investors — followed by insurers with 13%, central banks and sovereign wealth funds 12%, and financial institutions 15%, according to a source close to the deal.
Asian investors subscribed to 56% of the five-year note followed by US investors with 23%, and European investors 21%, the source added.
As for the 12-year offering — which received a total order book of $1.7 billion from 110 investors — insurers purchased 47% of the notes, followed by asset managers with 32%, central banks and sovereign wealth funds with 15%, and financial institutions and others 6%.
Asian investors subscribed to 70% of the 12-year paper, followed by US investors with 18% and European investors with 12%.
Korean issuers account for 16% of total G3 — dollar, euro and yen — issuance in Asia ex-Japan so far this year, which currently stands at $133.3 billion, and are second in terms of ranking behind Chinese borrowers, which account for 44% of total volume, according to Dealogic data.
The last time Kexim accessed international debt markets was in January, when it issued a $1.5 billion dual-tranche paper — split between a three-year floating rate note and 10-year SEC-registered fixed-rate bond.
Kexim is 100%-owned by the state — 70.1% directly, 15% through the Bank of Korea and 14.9% through Korea Finance Corporation at end-July 2014.
ANZ Securities, BNP Paribas, Bank of America Merrill Lynch, Citi, HSBC and Standard Chartered were the joint bookrunners of the deal, which falls under the bank’s existing US shelf programme that was updated on August 1 at the SEC.
