Successfully riding a wave of positive sentiment towards the Korean banking sector, Hana concluded its debut fixed rate bond deal yesterday (Thursday). At $600 million, the deal's issue size beats Woori Bank's previous $500 million record and at 123bp, its spread to Treasuries surpasses an IBK bond that priced in June last year at 136bp over.
Final terms were far more aggressive than anyone could have imagined a month ago and the timing could hardly have been better. Citigroup's acquisition of Koram has prompted a re-rating of the entire Korean banking sector, with the better-managed banks all benefiting from renewed investor interest and tightening spreads.
At the beginning of the year, participants worried that a glut of Korean borrowers crowding out the five-year part of the curve might create the same kind of pricing difficulties the market experienced for much of 2003. But in this instance, Hana has been able to double its prospective bond size from $300 million to $600 million after accumulating an order book of $1.7 billion.
Lead managers for the five-year deal were Bank of America, Citigroup and UBS. Pricing came at 99.313% on a coupon of 4.125% to yield 4.274%. This equates to a spread of 123bp over Treasuries or 81bp over Libor. Fees were 25bp.
Hana is Korea's third largest bank by assets behind Woori and Kookmin, both of which provide the nearest pricing comparables. Woori has a September 2008 bond outstanding, trading yesterday at 92bp over mid-swaps. After making a 5bp to 8bp adjustment for the curve, Hana has priced about 15bp to 20bp through its larger rival.
Kookmin has a shorter-dated December 2007 bond outstanding. This was trading yesterday at 70bp over mid-swaps and adjusting about 10bp to 15bp for the curve, Hana has priced flat to Kookmin.
Its pricing levels relative to Kookmin are particularly impressive given it has a one or two notch lower rating from all three agencies. Kookmin, for example, is rated A3/BBB+/A- (Fitch), while Hana is rated Baa2/BBB/BBB+ (Fitch). Woori, on the other hand, has a one-notch higher rating than Hana from Moody's, but a one-notch lower rating from Standard & Poor's - Baa1/BBB-/BBB+ (Fitch).
Specialists say S&P has traditionally accorded less weight to those banks with a high component of state ownership, holding back both Woori and Kookmin.
Hana is regarded as one of Korea's best managed banks and investors poured into its deal. The order book had a far higher number of investors than has been seen for recent Korean offerings. A total of 106 participated, with a geographical split that saw 21% placed into Korea, 42% Asia and 37% Europe and offshore US.
By investor type, asset managers took 58%, banks 35%, insurance companies 4% and retail 3%.
Bankers say one of the most noticeable aspects of the deal was the high interest from Europe. Having conducted a roadshow across Asia and Europe, the bank scored a 100% hit rate from one-on-one meetings in Frankfurt and London.
In some ways, this was not surprising given that Hana has never really presented its credit outside of Korea before. And what it revealed was a bank that has not only never incurred a loss in its entire history, but also accounted for 46% of net income across the entire Korean banking spectrum in 2003.
Bankers say investors were also impressed by the bank's transparency and superior management. As S&P said in a ratings release issued last week, "The profit oriented culture at Hana, which emphasises operational efficiency and credit risk control, should continue to be strengths of the bank."