South Korean engineering, procurement and construction contractor GS Engineering & Construction returned to the international bond markets with a $150 million convertible bond on Wednesday.
The company, commonly known as GS E&C, ranks as one of only a handful of repeat issuers from Korea, having priced a debut $100 million CB via JP Morgan in January 2014.
Shortly after the early redemption of that bond earlier this year, GS E&C returned to the domestic equity-linked market. In April it raised W250 billion ($218 million) from a five-year deal with a 2.9% coupon and a 14% conversion premium.
One source familiar with the situation said GS E&C decided to access the international market in quick succession thanks to the success of April’s deal.
Initial terms for the new offering comprised a coupon of 3.5% to 4.5% and a conversion premium of 25% to 30% over a W27,300 reference price. This translated to an initial conversation range of W34,125 to W35,490.
The deal has a five-year tenor with a two-year put option, an identical structure to its last international deal, but not one, which is often seen in Asia ex-Japan.
The bond was offered at a fixed size of $150 million without an upsize option. One source said this was the result of heightened market volatility post Brexit.
“The company wanted to give investors a clear idea of what it needed without confusing anyone,” the source said.
Sole bookrunner HSBC also provided extra downside protection by offering asset swap equivalent to approximately one-third of the deal, according to one bond trader. This was provided at a spread of 700bp/670bp.
There was also additional protection through a rare price reset structure. The conversion price can be reset twice-yearly subject to an 80% trigger.
Since HSBC wall-crossed a number of investors prior to launch, it did not struggle when books officially opened. Indeed, the book was only open for about two hours and closed before 6pm Hong Kong time, according to the source.
Hedge funds did not feature given the stock is fairly illiquid and there is little borrow in the secondary market. In the end, outrights accounted for about 52% of the final book while hedge funds contributed to 45%, the source said.
Final pricing was settled at the investor-friendly end of terms with a 4.5% coupon and 25% premium. This translates to a conversion price of W34,125, the stock has not reached since April last year.
Year-to-date the stock is up 38.23% but peaked in mid-May around the W31,500 level. On Wednesday it closed at W27,300.
Based on underlying credit assumptions of 700bp over Treasuries, the new 2021 bond has an implied volatility of 28.5% and a 94% bond floor.
Traders reported no immediate grey market activity after launch.