The first offshore dollar bond from the newly merged KEB Hana Bank hit a market under severe selling pressure on Wednesday, complicating efforts to execute a five-year transaction.
Bankers working on what ended up being a relatively small $300 million trade said it was very hard to pinpoint fair value for the new deal given that secondary market spreads were widening by the hour.
“The market is exceptionally volatile,” said one. “Treasury rates are out by 8bp so far today and credit spreads up to 10bp wider.”
When the A1/A/A- rated Reg S deal launched in the Asian morning, the region’s credit market was still fairly stable with both of Monday’s new issues for Bank of Communications (BoCom) and China Nonferrous Metals Corporation (CNMC) trading up to 5bp tighter thanks to top-up demand from mainland China.
However, as Asia opened for the afternoon session, and particularly after Europe kicked in, a wall of selling pressure hit spreads across the board. Sales desks said that all investor constituents, from retail through to fund managers and dealers, were pushing out wider.
Both BoCom and CNMC ended up moving back out to just inside their re-offer levels by Asia’s close.
Grizzly day
Paper at the 10-year part of the curve was the worst hit of all following the lead of US Treasuries, which fell back below 2% to trade around the 1.97% level at one point during the New York trading day. A sea of red hit markets across the world, as oil prices fell below $27 per barrel.
One of the worst affected from the recent crop of new issues was Swire Properties' 3.625% 2026 bond, which closed the day around the 168bp level, some 20.5bp wider than its original 147.5bp launch spread two weeks ago.
Recent Korean issues are also all now trading at or wider than their launch spreads on a Treasuries basis, although they are all slightly above issue on a price basis. Against this backdrop KEB Hana’s deal did not offer any concessions to investors in keeping with Korean borrowers’ typically aggressive attitude to pricing come rain or come shine.
As a result, the order book closed just over two times subscribed at the $675 million level.
Initial pricing was marketed around the 125bp level, before being tightened to 2.5bp either side of 115bp over Treasuries. Final pricing was fixed at 99.776% on a coupon of 2.5% to yield 2.548% or 112.5bp over Treasuries.
The two main comparables were Woori Bank’s 2.625% July 2021 deal from last week and KEB Hana’s outstanding 2.5% June 2019 deal.
In the Asian morning, the former had been trading on a G-spread of 108bp and the latter on a G-spread of 105bp. By Asia’s close both were trading 3bp to 5bp wider.
Earlier in the day, Mizuho analyst Mark Reade had estimated fair value at 5bp to 7bp wide of KEB Hana’s existing 2019 bond. This means its new A1/A/A- rated deal came slightly through fair value at a time when investors want a buffer against volatile markets.
“I’m finding that European deals are still working because issuers are recognising the need to factor in a new issue premium. Asian borrowers are still stuck in their old ways,” one fund manager told FinanceAsia.
However, syndicate bankers countered that some investors were still interested in the deal because they wanted to own the bonds of Korea’s largest commercial bank by assets.
A total of 64 accounts participated with a split, which saw 96% distributed in Asia and 4% in Europe.
By investor type, banks took 37%, fund managers 26%, insurers 25% and private banks/other 7%.
Joint bookrunners were ANZ, Bank of America Merrill Lynch, Citi, HSBC, Nomura and UBS. KEB Hana was also a joint lead manager and Hana Financial Investment a co-manager.
One day earlier, BoCom attracted a pretty reasonable $3 billion order book for its $500 million three-year deal.
After initially marketing the A2/A-A rated transaction around the 140bp level, final pricing was fixed at 99.951% on a coupon of 2.25% to yield 2.267% or 115bp over Treasuries.
Syndicate bankers reported participation from 87 accounts, of which 96% came from Asia and 4% from Europe and the Middle East. By investor type, banks took 76%, fund managers 15%, central banks 8% and private banking clients 1%.
CNMC, meanwhile, also priced a $500 million three-year deal with a standby letter of credit (SBLC) from Bank of China Beijing. After marketing the A-rated deal at 170bp over Treasuries, final pricing was fixed at 99.438% on a coupon of 2.375% and yield of 2.571%, equating to 145bp over Treasuries.
This deal attracted an order book of $3.5 billion with participation from 90 accounts, of which 92% came from Asia and 8% from EMEA. By investor type banks took 67%, fund managers 22%, sovereign wealth funds, insurers and corporates 7% and private banks 4%.
Bank of China and BOCI were joint lead managers.
Joint global co-ordinators for BoCom’s deal were Bocom HK, HSBC and Standard Chartered.
Home of the grizzly backs pandas
The Province of British Columbia became the first issuer of the year to target the panda bond market on Wednesday, launching terms for a three-year deal. The triple-A rated credit had been hoping to become the first ever sovereign borrower to tap China's domestic bond market late last year but was pipped to the post by the Republic of Korea due to the latter's strong geopolitical relationship with China.
Terms for the new deal comprise a yield range of 2.7% to 3.3% with pricing expected towards the end of the Asian trading day on Thursday.
Bank of China is bookrunner with HSBC as joint lead manager. Other syndicate members comprise CDB, ICBC, CCB, BoCom, ABC, China Minsheng Bank, SPDB, Bank of Ningbo, Citic Securities, China Merchants Securities and Bank of Montreal.
