Hyundai Capital drives into the overseas debt market

Stepping away from ABS issuance, Hyundai Capital launches new dollar bond.

Korean automobile financing firm Hyundai Capital Services secured a strong showing for its newest international bond on Thursday (November 17). Under the lead management of JPMorgan, Merrill Lynch and UBS, the Baa3/BBB rated group decided to increase its SEC registered deal from $300 million to $400 million on the back of a $800 million order book.

The rated notes priced at the tight end of initial guidance of 65bp to 70bp over mid-swaps. Pricing was fixed at 99.690% on a semi-annual coupon of 5.5% to yield 5.572%. This equates to 65bp over mid-swaps, or 113bp over Treasuries.

Despite the market's recent softness, the deal still garnered an impressive order book. Based on the original size, the deal had an oversubscription ratio in excess of 2.6 times.

Overall 60 accounts took part in the deal with the majority coming from Asia. Asian accounts made up 63% of the total book, with European-based investors picking up the remaining 37%.

In terms of comparables, lower rated parent company Hyundai Motors has an outstanding 5.3% December 2008. That deal which carries a BBB- rating from S&P and is currently yielding at 53bp over swaps or about 99bp over Treasuries. Bankers estimate that the interpolated curve to be worth about 20bp. This means Hyundai Capital has come at an implied 10bp tighter to Hyundai Motors.

Bankers also quoted LG Electronics' 5% June 2010 offering, which carries a similar rating to Hyundai Capital at BBB/Baa3. That deal was trading at 75bp over mid-swaps or 122bp over treasuries.

Hyundai Capital enjoys a higher rating than its Hyundai Motor because of the strong support it bears from GE Consumer Finance, the world's largest non-bank and the financial arm of the General Electric group. Last-year GE Consumer purchased a 38% stake in Hyundai Capital and now plays a core role in the management of Hyundai Capital. The financial expertise of GE centres on risk management and will go a long way in guaranteeing Hyundai Capital's profit recovery and sustainable growth.

Furthermore, during taped presentations shown at roadshows officials from GE Consumer Finance stated that they intend to increase their share in Hyundai Capital from the current 38% to the 42%-43% level.

The deal was shopped to investors at presentations in Singapore, Hong Kong and London. Hyundai Capital also met with potential European investors with a series of non-deal roadshows earlier in the year.

The deal will also help to diversify Hyundai Capital's funding options. In the past Hyundai Capital has relied on the sale of asset-backed securities to secure financing and is expected to scale back its ABS issuance.

Hyundai Capital is the leading auto financer in Korea, accounting for 65% of the market offering products such as installment financing for automobile, mortgage, durables and personal loan, and new business financing. However, Installment financing makes up the lion's share of Hyundai Capital's total sales, estimated at 80%.

Hyundai Capital finances about 60% of the domestic automobile sales by Hyundai and Kia Motors.

¬ Haymarket Media Limited. All rights reserved.
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